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.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. That said, here is one cash-producing company that excels at turning cash into shareholder value and two best left off your watchlist.
Two Stocks to Sell:
Keysight (KEYS)
Trailing 12-Month Free Cash Flow Margin: 27%
Spun off from Hewlett-Packard in 2014, Keysight (NYSE: KEYS) offers electronic measurement products for use in various sectors.
Why Do We Think Twice About KEYS?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 1.8% declines over the past two years
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Keysight is trading at $168.50 per share, or 22.4x forward P/E. To fully understand why you should be careful with KEYS, check out our full research report (it’s free for active Edge members).
Insight Enterprises (NSIT)
Trailing 12-Month Free Cash Flow Margin: 2.4%
With over 35 years of IT expertise and partnerships with more than 8,000 technology providers, Insight Enterprises (NASDAQ: NSIT) provides end-to-end digital transformation solutions that help businesses modernize their IT infrastructure and maximize the value of technology.
Why Do We Pass on NSIT?
- Annual sales declines of 7.2% for the past two years show its products and services struggled to connect with the market during this cycle
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 2.8% annually
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Insight Enterprises’s stock price of $108.77 implies a valuation ratio of 10.3x forward P/E. Dive into our free research report to see why there are better opportunities than NSIT.
One Stock to Buy:
Magnite (MGNI)
Trailing 12-Month Free Cash Flow Margin: 26.6%
Born from the 2020 merger of Rubicon Project and Telaria, Magnite (NASDAQ: MGNI) operates the world's largest independent sell-side advertising platform that automates the buying and selling of digital advertising inventory across all channels and formats.
Why Are We Backing MGNI?
- Market share has increased this cycle as its 33% annual revenue growth over the last five years was exceptional
- Additional sales over the last two years increased its profitability as the 22.8% annual growth in its earnings per share outpaced its revenue
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its growing cash flow gives it even more resources to deploy
At $19.33 per share, Magnite trades at 19.2x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free for active Edge members .
High-Quality Stocks for All Market Conditions
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