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.
Luckily for you, we built StockStory to help you separate the good from the bad. 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:
SunOpta (STKL)
Trailing 12-Month Free Cash Flow Margin: 4.8%
Committed to clean-label foods, SunOpta (NASDAQ: STKL) is a sustainability-focused food and beverage company specializing in the sourcing, processing, and packaging of organic products.
Why Are We Out on STKL?
- Products have few die-hard fans as sales have declined by 1.6% annually over the last three years
- Revenue base of $792.4 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 15.5%
SunOpta is trading at $6.50 per share, or 36.7x forward P/E. To fully understand why you should be careful with STKL, check out our full research report (it’s free).
ProFrac (ACDC)
Trailing 12-Month Free Cash Flow Margin: 1%
Operating one of the largest electric-powered fracturing fleets in North America, ProFrac (NASDAQ: ACDC) provides hydraulic fracturing services that help oil and gas companies extract hydrocarbons from underground shale formations.
Why Is ACDC Not Exciting?
- Gross margin of 32.8% is below its competitors, leaving less money to invest in exploration and production
- Day-to-day expenses have swelled relative to revenue over the last five years as its EBITDA margin fell by 1.6 percentage points
- Poor free cash flow margin of 4.3% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
At $6.22 per share, ProFrac trades at 8.8x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than ACDC.
One Stock to Watch:
Boston Scientific (BSX)
Trailing 12-Month Free Cash Flow Margin: 18.2%
Founded in 1979 with a mission to advance less-invasive medicine, Boston Scientific (NYSE: BSX) develops and manufactures medical devices used in minimally invasive procedures across cardiovascular, urological, neurological, and gastrointestinal specialties.
Why Are We Positive On BSX?
- Average organic revenue growth of 16.6% over the past two years demonstrates its ability to expand independently without relying on acquisitions
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 26% over the last five years outstripped its revenue performance
- Free cash flow margin increased by 7 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Boston Scientific’s stock price of $64.08 implies a valuation ratio of 18.7x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
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