A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, here is one cash-producing company that reinvests wisely to drive long-term success and two that may face some trouble.
Two Stocks to Sell:
Dayforce (DAY)
Trailing 12-Month Free Cash Flow Margin: 11.6%
Founded in 1992 as Ceridian, an outsourced payroll processor and transformed after the 2012 acquisition of Dayforce, Dayforce (NYSE: DAY) is a provider of cloud based payroll and HR software targeted at mid-sized businesses.
Why Does DAY Worry Us?
- Sales trends were unexciting over the last three years as its 18.7% annual growth was below the typical software company
- Gross margin of 50.3% is way below its competitors, leaving less money to invest in areas like marketing and R&D
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 3.4 percentage points
At $59.08 per share, Dayforce trades at 4.8x forward price-to-sales. Read our free research report to see why you should think twice about including DAY in your portfolio.
Danaher (DHR)
Trailing 12-Month Free Cash Flow Margin: 20.6%
Born from a real estate investment trust that transformed into a manufacturing powerhouse, Danaher (NYSE: DHR) is a global science and technology company that provides specialized equipment, software, and services for biotechnology, life sciences, and diagnostics.
Why Do We Think Twice About DHR?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Adjusted operating margin declined by 4.3 percentage points over the last two years as its sales cratered
- Free cash flow margin dropped by 6.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Danaher’s stock price of $190.50 implies a valuation ratio of 24x forward P/E. Dive into our free research report to see why there are better opportunities than DHR.
One Stock to Watch:
KBR (KBR)
Trailing 12-Month Free Cash Flow Margin: 5.1%
Known for projects like the construction of Guantanamo Bay, KBR provides professional services and technologies, specializing in engineering, construction, and government services sectors.
Why Does KBR Stand Out?
- 10.3% annual revenue growth over the last two years surpassed the sector average as its offerings resonated with customers
- Operating margin expanded by 4.9 percentage points over the last five years as it scaled and became more efficient
- Share buybacks catapulted its annual earnings per share growth to 15.8%, which outperformed its revenue gains over the last five years
KBR is trading at $52.19 per share, or 13.5x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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