A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Luckily for you, we built StockStory to help you separate the good from the bad. 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:
IQVIA (IQV)
Trailing 12-Month Free Cash Flow Margin: 12.8%
Created from the 2016 merger of Quintiles (a clinical research organization) and IMS Health (a healthcare data specialist), IQVIA (NYSE: IQV) provides clinical research services, data analytics, and technology solutions to help pharmaceutical companies develop and market medications more effectively.
Why Are We Wary of IQV?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 3.4% for the last two years
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Free cash flow margin shrank by 3.5 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $186.28 per share, IQVIA trades at 15x forward P/E. Check out our free in-depth research report to learn more about why IQV doesn’t pass our bar.
Robert Half (RHI)
Trailing 12-Month Free Cash Flow Margin: 5.1%
With roots dating back to 1948 as the first specialized recruiting firm for accounting and finance professionals, Robert Half (NYSE: RHI) provides specialized talent solutions and business consulting services, connecting skilled professionals with companies across various fields.
Why Is RHI Risky?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
- Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 11.3% annually
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Robert Half is trading at $34.82 per share, or 15.4x forward P/E. Read our free research report to see why you should think twice about including RHI in your portfolio.
One Stock to Buy:
Aris Water (ARIS)
Trailing 12-Month Free Cash Flow Margin: 21.7%
Primarily serving the oil and gas industry, Aris Water (NYSE: ARIS) is a provider of water handling and recycling solutions.
Why Should You Buy ARIS?
- Annual revenue growth of 23.8% over the last five years was superb and indicates its market share increased during this cycle
- Additional sales over the last two years increased its profitability as the 30.4% annual growth in its earnings per share outpaced its revenue
- Free cash flow margin expanded by 38.4 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
Aris Water’s stock price of $23.73 implies a valuation ratio of 14.8x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
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