Generating cash is essential for any business, but not all cash-rich companies are great investments. Some produce plenty of cash but fail to allocate it effectively, leading to missed opportunities.
Luckily for you, we built StockStory to help you separate the good from the bad. 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:
SunOpta (STKL)
Trailing 12-Month Free Cash Flow Margin: 4.8%
Committed to clean-label foods, SunOpta (NASDAQ: STKL) is a sustainability-focused food and beverage company specializing in the sourcing, processing, and packaging of organic products.
Why Do We Steer Clear of STKL?
- Sales tumbled by 1.6% annually over the last three years, showing consumer trends are working against its favor
- Revenue base of $792.4 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Easily substituted products (and therefore stiff competition) result in an inferior gross margin of 15.4% that must be offset through higher volumes
At $6.49 per share, SunOpta trades at 36.3x forward P/E. To fully understand why you should be careful with STKL, check out our full research report (it’s free).
Hyatt Hotels (H)
Trailing 12-Month Free Cash Flow Margin: 2.2%
Founded in 1957, Hyatt Hotels (NYSE: H) is a global hospitality company with a portfolio of 20 premier brands and over 950 properties across 65 countries.
Why Are We Out on H?
- Weak revenue per room over the past two years indicates challenges in maintaining pricing power and occupancy rates
- Operating margin of 5.3% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Hyatt Hotels’s stock price of $163.10 implies a valuation ratio of 49.6x forward P/E. Check out our free in-depth research report to learn more about why H doesn’t pass our bar.
One Stock to Buy:
Construction Partners (ROAD)
Trailing 12-Month Free Cash Flow Margin: 6.8%
Founded in 2001, Construction Partners (NASDAQ: ROAD) is a civil infrastructure company that builds and maintains roads, highways, and other infrastructure projects.
Why Are We Backing ROAD?
- Core business is healthy and doesn’t need acquisitions to boost sales as its organic revenue growth averaged 9.8% over the past two years
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 49.6% annually, topping its revenue gains
- Free cash flow margin increased by 7.8 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Construction Partners is trading at $136.81 per share, or 44.9x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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