While strong cash flow is a key indicator of stability, it doesn’t always translate to superior returns. Some cash-heavy businesses struggle with inefficient spending, slowing demand, or weak competitive positioning.
Luckily for you, we built StockStory to help you separate the good from the bad. That said, here are two cash-producing companies that excel at turning cash into shareholder value and one that may struggle to keep up.
One Stock to Sell:
Carnival (CCL)
Trailing 12-Month Free Cash Flow Margin: 11.7%
Boasting outrageous amenities like a planetarium on board its ships, Carnival (NYSE: CCL) is one of the world's largest leisure travel companies and a prominent player in the cruise industry.
Why Is CCL Risky?
- Number of passenger cruise days has disappointed over the past two years, indicating weak demand for its offerings
- Free cash flow margin is anticipated to expand by 1.4 percentage points over the next year, providing additional flexibility for investments and share buybacks/dividends
- ROIC of 1.4% reflects management’s challenges in identifying attractive investment opportunities
Carnival is trading at $27.90 per share, or 12.3x forward P/E. To fully understand why you should be careful with CCL, check out our full research report (it’s free).
Two Stocks to Watch:
SentinelOne (S)
Trailing 12-Month Free Cash Flow Margin: 3.5%
Built on the principle of "fighting machine with machine," SentinelOne (NYSE: S) provides an AI-powered cybersecurity platform that autonomously prevents, detects, and responds to threats across endpoints, cloud workloads, and identity systems.
Why Are We Positive on S?
- Ability to secure long-term commitments with customers is evident in its 22.8% ARR growth over the last year
- Estimated revenue growth of 19.4% for the next 12 months implies its momentum over the last two years will continue
- Free cash flow margin is expected to increase by 7.8 percentage points next year, suggesting the company will have more capital to invest or return to shareholders
At $17.48 per share, SentinelOne trades at 4.7x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free.
NetApp (NTAP)
Trailing 12-Month Free Cash Flow Margin: 27%
Founded in 1992 as a pioneer in networked storage technology, NetApp (NASDAQ: NTAP) provides data storage and management solutions that help organizations store, protect, and optimize their data across on-premises data centers and public clouds.
Why Are We Fans of NTAP?
- Billings have averaged 7.3% growth over the past two years, showing it’s securing new contracts that could potentially increase in value over time
- Share buybacks catapulted its annual earnings per share growth to 15%, which outperformed its revenue gains over the last five years
- Strong free cash flow margin of 20.3% enables it to reinvest or return capital consistently, and its improved cash conversion implies it’s becoming a less capital-intensive business
NetApp’s stock price of $153.09 implies a valuation ratio of 17.4x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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