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. That said, here are two cash-producing companies that reinvest wisely to drive long-term success and one best left off your watchlist.
One Stock to Sell:
Johnson Controls (JCI)
Trailing 12-Month Free Cash Flow Margin: 10.5%
Founded after patenting the electric room thermostat, Johnson Controls (NYSE: JCI) specializes in building products and technology solutions, including HVAC systems, fire and security systems, and energy storage.
Why Are We Wary of JCI?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 6.6%
- ROIC of 7.4% reflects management’s challenges in identifying attractive investment opportunities
At $131.08 per share, Johnson Controls trades at 27.3x forward P/E. If you’re considering JCI for your portfolio, see our FREE research report to learn more.
Two Stocks to Watch:
Instacart (CART)
Trailing 12-Month Free Cash Flow Margin: 24.3%
Powering more than one billion grocery orders since its founding, Instacart (NASDAQ: CART) is an online grocery shopping and delivery platform that partners with retailers to help customers shop from local stores through its app or website.
Why Should You Buy CART?
- Prominent and differentiated platform culminates in a top-tier gross margin of 74.4%
- Highly efficient business model is illustrated by its impressive 27.7% EBITDA margin, and its profits increased over the last few years as it scaled
- Free cash flow margin jumped by 14.4 percentage points over the last few years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Instacart’s stock price of $37.44 implies a valuation ratio of 7.3x forward EV/EBITDA. Is now the time to initiate a position? Find out in our full research report, it’s free.
Broadridge (BR)
Trailing 12-Month Free Cash Flow Margin: 18.4%
Processing over $10 trillion in equity and fixed income trades daily and managing proxy voting for over 800 million equity positions, Broadridge Financial Solutions (NYSE: BR) provides technology-driven solutions that power investing, governance, and communications for banks, broker-dealers, asset managers, and public companies.
Why Are We Positive On BR?
- 8.9% annual revenue growth over the last five years surpassed the sector average as its services resonated with customers
- Free cash flow margin increased by 11.2 percentage points over the last five years, giving the company more capital to invest or return to shareholders
- Returns on capital are growing as management capitalizes on its market opportunities
Broadridge is trading at $177.62 per share, or 18.9x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
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