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.
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 that may face some trouble.
Two Stocks to Sell:
G-III (GIII)
Trailing 12-Month Free Cash Flow Margin: 10.4%
Founded as a small leather goods business, G-III (NASDAQ: GIII) is a fashion and apparel conglomerate with a diverse portfolio of brands.
Why Are We Out on GIII?
- Sales were flat over the last two years, indicating it’s failed to expand its business
- Projected sales decline of 1.3% for the next 12 months points to an even tougher demand environment ahead
- Underwhelming 8.3% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $26.05 per share, G-III trades at 6.8x forward P/E. Read our free research report to see why you should think twice about including GIII in your portfolio.
Omnicom Group (OMC)
Trailing 12-Month Free Cash Flow Margin: 11.1%
With a vast network of creative agencies that helped craft some of the most memorable ad campaigns in history, Omnicom Group (NYSE: OMC) is a strategic holding company that provides advertising, marketing, and communications services to many of the world's largest companies.
Why Does OMC Fall Short?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- 4.8 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Omnicom Group’s stock price of $77.48 implies a valuation ratio of 8.9x forward P/E. Check out our free in-depth research report to learn more about why OMC doesn’t pass our bar.
One Stock to Buy:
Mastercard (MA)
Trailing 12-Month Free Cash Flow Margin: 52.5%
Recognizable by its iconic "Priceless" advertising campaign that has run in over 120 countries, Mastercard (NYSE: MA) operates a global payments network that connects consumers, financial institutions, merchants, and businesses, enabling electronic transactions and providing payment solutions.
Why Is MA a Good Business?
- 13.3% annual revenue growth over the last five years surpassed the sector average as its products resonated with customers
- Share buybacks propelled its annual earnings per share growth to 18.9%, which outperformed its revenue gains over the last two years
- Stellar return on equity showcases management’s ability to surface highly profitable business ventures
Mastercard is trading at $592.59 per share, or 34.6x 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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