A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Luckily for you, we built StockStory to help you separate the good from the bad. That said, here are two cash-producing companies that reinvest wisely to drive long-term success and one that may face some trouble.
One Stock to Sell:
US Foods (USFD)
Trailing 12-Month Free Cash Flow Margin: 2.4%
With a fleet of over 6,500 trucks delivering everything from fresh produce to frozen entrées, US Foods (NYSE: USFD) is a major foodservice distributor that supplies food products and services to approximately 250,000 restaurants, healthcare facilities, hotels, and educational institutions across the United States.
Why Do We Avoid USFD?
- Unit sales averaged 2.8% growth over the past two years and imply healthy demand for its products
- Subpar operating margin of 3% constrains its ability to invest in process improvements or effectively respond to new competitive threats
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
US Foods’s stock price of $91.37 implies a valuation ratio of 19.8x forward P/E. Read our free research report to see why you should think twice about including USFD in your portfolio.
Two Stocks to Watch:
Workiva (WK)
Trailing 12-Month Free Cash Flow Margin: 15.6%
Nicknamed "the Excel killer" by some finance professionals for its ability to eliminate spreadsheet chaos, Workiva (NYSE: WK) provides a cloud-based platform that enables organizations to streamline financial reporting, ESG, and compliance processes with connected data and automation.
Why Does WK Stand Out?
- ARR trends over the last year show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
- Superior software functionality and low servicing costs are reflected in its top-tier gross margin of 78.5%
- Free cash flow margin is anticipated to expand by 3.2 percentage points over the next year, providing additional flexibility for investments and share buybacks/dividends
At $60.05 per share, Workiva trades at 3.4x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
Nextpower (NXT)
Trailing 12-Month Free Cash Flow Margin: 16.3%
With its technology playing a key role in the massive 1.2 gigawatt Noor Abu Dhabi solar farm project, Nextpower (NASDAQ: NXT) is a provider of solar tracker systems that help solar panels follow the sun.
Why Is NXT a Good Business?
- Annual revenue growth of 25.7% over the last two years was superb and indicates its market share increased during this cycle
- Free cash flow margin increased by 22.5 percentage points over the last five years, giving the company more capital to invest or return to shareholders
- Returns on capital are growing as management capitalizes on its market opportunities
Nextpower is trading at $119.23 per share, or 26.8x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
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