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.

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 that may struggle to keep up.

Two Stocks to Sell:

Five9 (FIVN)

Trailing 12-Month Free Cash Flow Margin: 11.3%

Taking its name from the "five nines" (99.999%) standard for optimal service reliability in telecommunications, Five9 (NASDAQ: FIVN) provides cloud-based software that enables businesses to run their contact centers with tools for customer service, sales, and marketing across multiple communication channels.

Why Are We Cautious About FIVN?

1. Offerings struggled to generate meaningful interest as its average billings growth of 10.5% over the last year did not impress
2. Estimated sales growth of 8.2% for the next 12 months implies demand will slow from its two-year trend
3. Sky-high servicing costs result in an inferior gross margin of 55.4% that must be offset through increased usage

At $17.78 per share, Five9 trades at 1.3x forward price-to-sales. Check out our free in-depth research report to learn more about why FIVN doesn’t pass our bar.

MGP Ingredients (MGPI)

Trailing 12-Month Free Cash Flow Margin: 10.7%

Headquartered in Atchison, Kansas, MGP Ingredients (NASDAQ: MGPI) is a leading supplier of high-quality ingredients to the food and beverage industry

Why Do We Steer Clear of MGPI?

1. Products aren't resonating with the market as its revenue declined by 8.6% annually over the last three years
2. Sales are projected to tank by 12% over the next 12 months as its demand continues evaporating
3. Inability to adjust its cost structure while its revenue declined over the last year led to a 18.3 percentage point drop in the company’s operating margin

MGP Ingredients’s stock price of $22.75 implies a valuation ratio of 9.3x forward P/E. Dive into our free research report to see why there are better opportunities than MGPI.

One Stock to Watch:

PTC (PTC)

Trailing 12-Month Free Cash Flow Margin: 31.3%

Originally known as Parametric Technology Corporation until its 2013 rebranding, PTC (NASDAQ: PTC) provides software that helps manufacturers design, develop, and service physical products through digital solutions for CAD, PLM, ALM, and SLM.

Why Does PTC Stand Out?

1. Superior software functionality and low servicing costs are reflected in its stellar gross margin of 83.8%
2. Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
3. Disciplined cost controls and effective management resulted in a strong trailing 12-month operating margin of 35.9%, and its operating leverage amplified its profits over the last year

PTC is trading at $170.30 per share, or 7.4x forward price-to-sales. Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.

High-Quality Stocks for All Market Conditions

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