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. That said, 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:
Paylocity (PCTY)
Trailing 12-Month Free Cash Flow Margin: 24.2%
Operating in a field where companies traditionally juggled multiple disconnected systems, Paylocity (NASDAQ: PCTY) provides cloud-based human capital management and payroll software solutions that help businesses manage their workforce and HR processes.
Why Does PCTY Fall Short?
- Customers were hesitant to make long-term commitments to its software as its 12.2% average ARR growth over the last year was sluggish
- Estimated sales growth of 6.7% for the next 12 months implies demand will slow from its two-year trend
- Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
Paylocity is trading at $144.62 per share, or 4.2x forward price-to-sales. Check out our free in-depth research report to learn more about why PCTY doesn’t pass our bar.
Dolby Laboratories (DLB)
Trailing 12-Month Free Cash Flow Margin: 29%
Known for its iconic "D" logo that appears before countless movies and TV shows, Dolby Laboratories (NYSE: DLB) designs and licenses audio and video technologies that enhance entertainment experiences in movies, TV shows, music, and other media.
Why Should You Sell DLB?
- Muted 1.3% annual revenue growth over the last five years shows its demand lagged behind its software peers
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 3.3 percentage points
At $58.13 per share, Dolby Laboratories trades at 3.8x forward price-to-sales. Read our free research report to see why you should think twice about including DLB in your portfolio.
One Software Stock to Buy:
AppLovin (APP)
Trailing 12-Month Free Cash Flow Margin: 66.3%
Sitting at the crossroads of the mobile advertising ecosystem with over 200 free-to-play games in its portfolio, AppLovin (NASDAQ: APP) provides software solutions that help mobile app developers market, monetize, and grow their apps through AI-powered advertising and analytics tools.
Why Should You Buy APP?
- Market share has increased as its 31.4% annual revenue growth over the last two years was exceptional
- Well-designed software integrates seamlessly with other workflows, enabling swift payback periods on marketing expenses and customer growth at scale
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
AppLovin’s stock price of $268.27 implies a valuation ratio of 10.3x 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
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+214% between June 2020 and June 2025). Find your next big winner with StockStory today.
