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.
Luckily for you, we built StockStory to help you separate the good from the bad. That said, here is one cash-producing company that excels at turning cash into shareholder value and two that may face some trouble.
Two Stocks to Sell:
The New York Times (NYT)
Trailing 12-Month Free Cash Flow Margin: 16.9%
Founded in 1851, The New York Times (NYSE: NYT) is an American media organization known for its influential newspaper and expansive digital journalism platforms.
Why Are We Cautious About NYT?
- Demand for its offerings was relatively low as its number of subscribers has underwhelmed
- Anticipated sales growth of 6.9% for the next year implies demand will be shaky
- Waning returns on capital imply its previous profit engines are losing steam
The New York Times’s stock price of $59.45 implies a valuation ratio of 26.4x forward P/E. Dive into our free research report to see why there are better opportunities than NYT.
Mohawk Industries (MHK)
Trailing 12-Month Free Cash Flow Margin: 4.5%
Established in 1878, Mohawk Industries (NYSE: MHK) is a leading producer of floor-covering products for both residential and commercial applications.
Why Is MHK Risky?
- 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
- ROIC of 3.9% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Mohawk Industries is trading at $131.15 per share, or 13x forward P/E. Check out our free in-depth research report to learn more about why MHK doesn’t pass our bar.
One Stock to Watch:
Carlisle (CSL)
Trailing 12-Month Free Cash Flow Margin: 17.6%
Originally founded as Carlisle Tire and Rubber Company, Carlisle Companies (NYSE: CSL) is a multi-industry product manufacturer focusing on construction materials and weatherproofing technologies.
Why Does CSL Stand Out?
- Disciplined cost controls and effective management resulted in a strong long-term operating margin of 19.1%, and it turbocharged its profits by achieving some fixed cost leverage
- Share buybacks catapulted its annual earnings per share growth to 23%, which outperformed its revenue gains over the last five years
- Free cash flow margin grew by 5.1 percentage points over the last five years, giving the company more chips to play with
At $393 per share, Carlisle trades at 16.7x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
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