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 are two cash-producing companies that reinvest wisely to drive long-term success and one that may face some trouble.

One Stock to Sell:

Sally Beauty (SBH)

Trailing 12-Month Free Cash Flow Margin: 4.6%

Catering to both everyday consumers as well as salon professionals, Sally Beauty (NYSE: SBH) is a retailer that sells salon-quality beauty products such as makeup and haircare products.

Why Do We Pass on SBH?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Subscale operations are evident in its revenue base of $3.69 billion, meaning it has fewer distribution channels than its larger rivals
3. Falling earnings per share over the last six years has some investors worried as stock prices ultimately follow EPS over the long term

Sally Beauty is trading at $16.32 per share, or 8.4x forward P/E. Read our free research report to see why you should think twice about including SBH in your portfolio.

Two Stocks to Watch:

Altria (MO)

Trailing 12-Month Free Cash Flow Margin: 43.1%

Best known for its Marlboro brand of cigarettes, Altria (NYSE: MO) offers tobacco and nicotine products.

Why Do We Like MO?

1. Unique products and pricing power result in a best-in-class gross margin of 70.7%
2. Excellent operating margin of 54.6% highlights the efficiency of its business model
3. Strong free cash flow margin of 43.3% enables it to reinvest or return capital consistently

Altria’s stock price of $65.73 implies a valuation ratio of 11.9x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.

Wabtec (WAB)

Trailing 12-Month Free Cash Flow Margin: 13.7%

Also known as Wabtec, Westinghouse Air Brake Technologies (NYSE: WAB) provides equipment, systems, and related software for the railway industry.

Why Do We Watch WAB?

1. Operating margin expanded by 6.4 percentage points over the last five years as it scaled and became more efficient
2. Share repurchases have amplified shareholder returns as its annual earnings per share growth of 25.7% exceeded its revenue gains over the last two years
3. WAB is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its recently improved profitability means it has even more resources to invest or distribute

At $196.67 per share, Wabtec trades at 27.4x forward EV-to-EBITDA. Is now the time to initiate a position? Find out in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

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