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.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, here is one cash-producing company that leverages its financial strength to beat its competitors and two that may face some trouble.
Two Stocks to Sell:
National Vision (EYE)
Trailing 12-Month Free Cash Flow Margin: 4.3%
Operating under multiple brands, National Vision (NYSE: EYE) sells optical products such as eyeglasses and provides optical services such as eye exams.
Why Are We Out on EYE?
- Sales tumbled by 1.6% annually over the last three years, showing consumer trends are working against its favor
- Recent store closures reflect a shift toward streamlining existing locations to maximize efficiency
- Underwhelming 3.1% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up
National Vision’s stock price of $26.37 implies a valuation ratio of 29.4x forward P/E. To fully understand why you should be careful with EYE, check out our full research report (it’s free).
Mattel (MAT)
Trailing 12-Month Free Cash Flow Margin: 9.3%
Known for the creation of iconic toys such as Barbie and Hotwheels, Mattel (NASDAQ: MAT) is a global children's entertainment company specializing in the design and production of consumer products.
Why Should You Sell MAT?
- Sales trends were unexciting over the last five years as its 3.3% annual growth was below the typical consumer discretionary company
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $20.88 per share, Mattel trades at 12.2x forward P/E. If you’re considering MAT for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Zoetis (ZTS)
Trailing 12-Month Free Cash Flow Margin: 23.8%
Originally spun off from Pfizer in 2013 as the world's largest pure-play animal health company, Zoetis (NYSE: ZTS) discovers, develops, and sells medicines, vaccines, diagnostic products, and services for pets and livestock animals worldwide.
Why Do We Like ZTS?
- Performance over the past five years was boosted by share buybacks, which enabled its earnings per share to grow faster than its revenue
- ZTS is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
- Industry-leading 29.2% return on capital demonstrates management’s skill in finding high-return investments
Zoetis is trading at $123.65 per share, or 18.3x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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