A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, here is one cash-producing company that reinvests wisely to drive long-term success and two that may struggle to keep up.
Two Software Stocks to Sell:
Bandwidth (BAND)
Trailing 12-Month Free Cash Flow Margin: 7.5%
Powering communications for tech giants like Microsoft, Google, and Zoom, Bandwidth (NASDAQ: BAND) provides cloud-based communications software and APIs that enable businesses to embed voice, messaging, and emergency services into their applications and platforms.
Why Are We Out on BAND?
- Revenue increased by 13.1% annually over the last three years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
- Estimated sales growth of 4.6% for the next 12 months implies demand will slow from its three-year trend
- Sky-high servicing costs result in an inferior gross margin of 38.6% that must be offset through increased usage
At $15 per share, Bandwidth trades at 0.6x forward price-to-sales. To fully understand why you should be careful with BAND, check out our full research report (it’s free).
Marqeta (MQ)
Trailing 12-Month Free Cash Flow Margin: 9.6%
Powering the cards behind innovative fintech services like Block's Cash App, Marqeta (NASDAQ: MQ) provides a cloud-based platform that allows businesses to create customized payment card programs and process card transactions.
Why Are We Cautious About MQ?
- Sales tumbled by 4.7% annually over the last three years, showing industry trends like AI are working against its favor
- Operating profits fell over the last year as its sales dropped and it struggled to adjust its fixed costs
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Marqeta is trading at $6.32 per share, or 4.4x forward price-to-sales. Read our free research report to see why you should think twice about including MQ in your portfolio.
One Software Stock to Watch:
Freshworks (FRSH)
Trailing 12-Month Free Cash Flow Margin: 24.5%
Starting as a customer service solution before expanding into a comprehensive software suite, Freshworks (NASDAQ: FRSH) provides AI-powered software-as-a-service solutions that help companies manage customer service, IT support, sales, and marketing functions.
Why Could FRSH Be a Winner?
- ARR trends over the last year show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
- Prominent and differentiated software culminates in a stellar gross margin of 84.6%
- Operating margin improvement of 13.2 percentage points over the last year demonstrates its ability to scale efficiently
Freshworks’s stock price of $13.60 implies a valuation ratio of 4.6x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound 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 183% over the last five years (as of March 31st 2025).
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. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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