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.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. Keeping that in mind, here are two cash-producing companies that reinvest wisely to drive long-term success and one best left off your watchlist.
One Stock to Sell:
Columbus McKinnon (CMCO)
Trailing 12-Month Free Cash Flow Margin: 3%
With 19 different brands across the globe, Columbus McKinnon (NASDAQ: CMCO) offers material handling equipment for the construction, manufacturing, and transportation industries.
Why Do We Think CMCO Will Underperform?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- Earnings per share fell by 11.3% annually over the last two years while its revenue was flat, showing each sale was less profitable
- Free cash flow margin shrank by 3.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Columbus McKinnon’s stock price of $17.21 implies a valuation ratio of 6.4x forward P/E. To fully understand why you should be careful with CMCO, check out our full research report (it’s free for active Edge members).
Two Stocks to Watch:
Remitly (RELY)
Trailing 12-Month Free Cash Flow Margin: 13.3%
With Amazon founder Jeff Bezos as an early investor, Remitly (NASDAQ: RELY) is an online platform that enables consumers to safely and quickly send money globally.
Why Will RELY Outperform?
- Active Customers are rising, meaning the company can increase revenue without incurring additional customer acquisition costs if it can cross-sell additional products and features
- Incremental sales over the last three years have been highly profitable as its earnings per share increased by 74.6% annually, topping its revenue gains
- Free cash flow margin jumped by 24.7 percentage points over the last few years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Remitly is trading at $13.32 per share, or 9.3x forward EV/EBITDA. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
Intuitive Surgical (ISRG)
Trailing 12-Month Free Cash Flow Margin: 23.6%
Pioneering minimally invasive surgery since its first da Vinci system was FDA-cleared in 2000, Intuitive Surgical (NASDAQ: ISRG) develops and manufactures robotic-assisted surgical systems that enable minimally invasive procedures across various medical specialties.
Why Does ISRG Catch Our Eye?
- Products are seeing elevated demand as its system placement averaged 12.7% growth over the past two years
- Forecasted revenue growth of 14.2% for the next 12 months indicates its momentum over the last two years is sustainable
- Earnings per share grew by 20.9% annually over the last five years and trumped its peers
At $561.80 per share, Intuitive Surgical trades at 61x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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