While strong cash flow is a key indicator of stability, it doesn’t always translate to superior returns. Some cash-heavy businesses struggle with inefficient spending, slowing demand, or weak competitive positioning.

Not all companies are created equal, and StockStory is here to surface the ones with real upside. Keeping that in mind, here is one cash-producing company that leverages its financial strength to beat its competitors and two best left off your watchlist.

Two Stocks to Sell:

Macy's (M)

Trailing 12-Month Free Cash Flow Margin: 1.7%

With a storied history that began with its 1858 founding, Macy’s (NYSE:M) is a department store chain that sells clothing, cosmetics, accessories, and home goods.

Why Is M Risky?

Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations Sales are projected to tank by 5.6% over the next 12 months as its demand continues evaporating ROIC of 0.4% reflects management’s challenges in identifying attractive investment opportunities

Macy's is trading at $12.16 per share, or 5.3x forward P/E. Check out our free in-depth research report to learn more about why M doesn’t pass our bar.

Churchill Downs (CHDN)

Trailing 12-Month Free Cash Flow Margin: 10.5%

Famous for hosting the Kentucky Derby, Churchill Downs (NASDAQ:CHDN) operates a horse racing, online wagering, and gaming entertainment business in the United States.

Why Does CHDN Give Us Pause?

Estimated sales growth of 5.8% for the next 12 months implies demand will slow from its two-year trend Low free cash flow margin of 4.5% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders Below-average returns on capital indicate management struggled to find compelling investment opportunities

Churchill Downs’s stock price of $98.60 implies a valuation ratio of 15.2x forward P/E. Dive into our free research report to see why there are better opportunities than CHDN.

One Stock to Watch:

Ross Stores (ROST)

Trailing 12-Month Free Cash Flow Margin: 7.7%

Selling excess inventory or overstocked items from other retailers, Ross Stores (NASDAQ:ROST) is an off-price concept that sells apparel and other goods at prices much lower than department stores.

Why Could ROST Be a Winner?

Rapid rollout of new stores to capitalize on market opportunities makes sense given its strong same-store sales performance Same-store sales growth averaged 3.6% over the past two years, showing it’s bringing new and repeat shoppers into its stores Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends

Story Continues

At $150 per share, Ross Stores trades at 22.5x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.

Stocks We Like Even More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today for free.