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.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here is one cash-producing company that leverages its financial strength to beat its competitors and two best left off your watchlist.
Two Stocks to Sell:
Lucky Strike (LUCK)
Trailing 12-Month Free Cash Flow Margin: 1.3%
Born from the transformation of traditional bowling alleys into modern entertainment destinations, Lucky Strike (NYSE: LUCK) operates bowling alleys and other entertainment venues with upscale amenities, arcade games, and food and beverage services across North America.
Why Is LUCK Risky?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Lucky Strike’s stock price of $9.03 implies a valuation ratio of 51.7x forward P/E. Check out our free in-depth research report to learn more about why LUCK doesn’t pass our bar.
Offerpad (OPAD)
Trailing 12-Month Free Cash Flow Margin: 7.1%
Known for giving homeowners cash offers within 24 hours, Offerpad (NYSE: OPAD) operates a tech-enabled platform specializing in direct home buying and selling solutions.
Why Do We Think OPAD Will Underperform?
- Sluggish trends in its homes purchased suggest customers aren’t adopting its solutions as quickly as the company hoped
- Projected 10.6 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
- EBITDA losses may force it to accept punitive lending terms or high-cost debt
At $1.41 per share, Offerpad trades at 0.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than OPAD.
One Stock to Watch:
Electronic Arts (EA)
Trailing 12-Month Free Cash Flow Margin: 22.7%
Best known for its Madden NFL and FIFA sports franchises, Electronic Arts (NASDAQ: EA) is one of the world’s largest video game publishers.
Why Is EA on Our Radar?
- Marketing spend is minimal, showing it doesn’t need advertisements to acquire new users because of its well-known brand
- Disciplined cost controls and effective management resulted in a strong two-year EBITDA margin of 32.9%
- Robust free cash flow margin of 24.7% gives it many options for capital deployment, and its improved cash conversion implies it’s becoming a less capital-intensive business
Electronic Arts is trading at $203.98 per share, or 15.7x forward EV/EBITDA. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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