A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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 excels at turning cash into shareholder value and two best left off your watchlist.
Two Stocks to Sell:
Cars.com (CARS)
Trailing 12-Month Free Cash Flow Margin: 17.4%
Originally started as a joint venture between several media companies including The Washington Post and The New York Times, Cars.com (NYSE: CARS) is a digital marketplace that connects new and used car buyers and sellers.
Why Are We Cautious About CARS?
- Competition may be pulling attention away from its platform as its 1% average growth in dealer customers was choppy
- Estimated sales growth of 1.1% for the next 12 months implies demand will slow from its three-year trend
- Earnings per share were flat over the last three years while its revenue grew, showing its incremental sales were less profitable
At $8.32 per share, Cars.com trades at 4.3x forward EV/EBITDA. If you’re considering CARS for your portfolio, see our FREE research report to learn more.
News Corp (NWSA)
Trailing 12-Month Free Cash Flow Margin: 6.8%
Established in 2013 after a restructuring, News Corp (NASDAQ: NWSA) is a multinational conglomerate known for its news publishing, broadcasting, digital media, and book publishing.
Why Are We Out on NWSA?
- Flat sales over the last five years suggest it must innovate and find new ways to grow
- Poor free cash flow margin of 7.3% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Unchanged returns on capital make it difficult for the company’s valuation multiple to re-rate
News Corp is trading at $24.40 per share, or 20.6x forward P/E. Read our free research report to see why you should think twice about including NWSA in your portfolio.
One Stock to Buy:
Riley Exploration Permian (REPX)
Trailing 12-Month Free Cash Flow Margin: 21.3%
Operating in counties where legacy oil fields have been producing since the early 1900s, Riley Exploration Permian (NYSE: REPX) drills for and produces oil and natural gas from horizontal wells in the Permian Basin of West Texas and New Mexico.
Why Are We Bullish on REPX?
- Annual revenue growth of 32.8% over the past eight years was outstanding, reflecting market share gains this cycle
- Attractive asset base leads to wonderful unit economics and a best-in-class gross margin of 77%
- Robust free cash flow margin of 17.2% gives it many options for capital deployment
Riley Exploration Permian’s stock price of $36.63 implies a valuation ratio of 7.5x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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