A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. Keeping that in mind, 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:
Twilio (TWLO)
Trailing 12-Month Free Cash Flow Margin: 15.3%
Known for the clever "Twilio Magic" demo that had developers creating functioning communications apps in minutes, Twilio (NYSE: TWLO) provides a platform that enables businesses to communicate with their customers through voice, messaging, email, and other digital channels.
Why Does TWLO Give Us Pause?
- Annual revenue growth of 11.6% over the last three years was below our standards for the software sector
- Estimated sales growth of 8.5% for the next 12 months implies demand will slow from its three-year trend
- Gross margin of 50% is way below its competitors, leaving less money to invest in areas like marketing and R&D
At $104.43 per share, Twilio trades at 3.3x forward price-to-sales. If you’re considering TWLO for your portfolio, see our FREE research report to learn more.
Charter (CHTR)
Trailing 12-Month Free Cash Flow Margin: 9.4%
Operating as Spectrum, Charter (NASDAQ: CHTR) is a leading telecommunications company offering cable television, high-speed internet, and voice services across the United States.
Why Are We Cautious About CHTR?
- Performance surrounding its internet subscribers has lagged its peers
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Charter’s stock price of $260.09 implies a valuation ratio of 6.3x forward P/E. To fully understand why you should be careful with CHTR, check out our full research report (it’s free).
One Stock to Watch:
Paycom (PAYC)
Trailing 12-Month Free Cash Flow Margin: 18.3%
Pioneering the concept of employees doing their own payroll with its "Beti" technology, Paycom (NYSE: PAYC) provides cloud-based human capital management software that helps businesses manage the entire employment lifecycle from recruitment to retirement.
Why Could PAYC Be a Winner?
- Software is difficult to replicate at scale and results in a best-in-class gross margin of 86.2%
- User-friendly software enables clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
- Healthy operating margin of 28.1% shows it’s a well-run company with efficient processes
Paycom is trading at $218.76 per share, or 5.7x forward price-to-sales. 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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