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.

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 leverages its financial strength to beat its competitors and two that may struggle to keep up.

Two Stocks to Sell:

Target (TGT)

Trailing 12-Month Free Cash Flow Margin: 4.2%

With a higher focus on style and aesthetics compared to other large general merchandise retailers, Target (NYSE:TGT) serves the suburban consumer who is looking for a wide range of products under one roof.

Why Are We Wary of TGT?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience

2. Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 28%

3. Subpar operating margin of 5.3% constrains its ability to invest in process improvements or effectively respond to new competitive threats

At $94.88 per share, Target trades at 10.1x forward price-to-earnings. To fully understand why you should be careful with TGT, check out our full research report (it’s free) .

Resideo (REZI)

Trailing 12-Month Free Cash Flow Margin: 5.4%

Resideo Technologies, Inc. (NYSE: REZI) is a manufacturer and distributor of technology-driven products and solutions for home comfort, energy management, water management, and safety and security.

Why Does REZI Fall Short?

1. Sales trends were unexciting over the last two years as its 3% annual growth was below the typical industrials company

2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term

3. Eroding returns on capital suggest its historical profit centers are aging

Resideo’s stock price of $15.46 implies a valuation ratio of 6.5x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than REZI .

One Stock to Watch:

Qualcomm (QCOM)

Trailing 12-Month Free Cash Flow Margin: 31.3%

Having been at the forefront of developing the standards for cellular connectivity for over four decades, Qualcomm (NASDAQ:QCOM) is a leading innovator and a fabless manufacturer of wireless technology chips used in smartphones, autos and internet of things appliances.

Why Are We Fans of QCOM?

1. Healthy operating margin of 24.6% shows it’s a well-run company with efficient processes

2. Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its recently improved profitability means it has even more resources to invest or distribute

3. Industry-leading 52.5% return on capital demonstrates management’s skill in finding high-return investments