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 reinvests wisely to drive long-term success and two that may struggle to keep up.
Two Stocks to Sell:
Kontoor Brands (KTB)
Trailing 12-Month Free Cash Flow Margin: 11.4%
Founded in 2019 after separating from VF Corporation, Kontoor Brands (NYSE: KTB) is a clothing company known for its high-quality denim products.
Why Are We Cautious About KTB?
- Sales were flat over the last two years, indicating it’s failed to expand its business
- Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
- Diminishing returns on capital suggest its earlier profit pools are drying up
Kontoor Brands’s stock price of $79.82 implies a valuation ratio of 14.6x forward P/E. Dive into our free research report to see why there are better opportunities than KTB.
ESAB (ESAB)
Trailing 12-Month Free Cash Flow Margin: 9.4%
Having played a significant role in the construction of the iconic Sydney Opera House, ESAB (NYSE: ESAB) manufactures and sells welding and cutting equipment for numerous industries.
Why Should You Dump ESAB?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Earnings growth over the last four years fell short of the peer group average as its EPS only increased by 3.6% annually
- Free cash flow margin shrank by 4.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $116.39 per share, ESAB trades at 20.1x forward P/E. Check out our free in-depth research report to learn more about why ESAB doesn’t pass our bar.
One Stock to Watch:
United Rentals (URI)
Trailing 12-Month Free Cash Flow Margin: 13.8%
Owning the largest rental fleet in the world, United Rentals (NYSE: URI) provides equipment rental and related services to construction, industrial, and infrastructure industries.
Why Are We Positive On URI?
- Impressive 11.8% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Highly efficient business model is illustrated by its impressive 25.8% operating margin, and it turbocharged its profits by achieving some fixed cost leverage
- Share repurchases over the last five years enabled its annual earnings per share growth of 18.1% to outpace its revenue gains
United Rentals is trading at $971.42 per share, or 21.9x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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