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. That said, here is one cash-producing company that reinvests wisely to drive long-term success and two that may face some trouble.
Two Stocks to Sell:
Unity (U)
Trailing 12-Month Free Cash Flow Margin: 19.9%
Powering over half of the world's mobile games and expanding into industries from automotive to architecture, Unity (NYSE: U) provides software tools and services that allow developers to create, run, and monetize interactive 2D and 3D content across multiple platforms.
Why Do We Pass on U?
- Products, pricing, or go-to-market strategy need some adjustments as its billings have averaged 6% declines over the last year
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
- Poor expense management has led to operating margin losses
Unity is trading at $36.44 per share, or 8x forward price-to-sales. Dive into our free research report to see why there are better opportunities than U.
Lamb Weston (LW)
Trailing 12-Month Free Cash Flow Margin: 7.7%
Best known for its Grown in Idaho brand, Lamb Weston (NYSE: LW) produces and distributes potato products such as frozen french fries and mashed potatoes.
Why Are We Wary of LW?
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
- Easily substituted products (and therefore stiff competition) result in an inferior gross margin of 23.9% that must be offset through higher volumes
- Efficiency has decreased over the last year as its operating margin fell by 5.3 percentage points
Lamb Weston’s stock price of $65.16 implies a valuation ratio of 20.6x forward P/E. To fully understand why you should be careful with LW, check out our full research report (it’s free for active Edge members).
One Stock to Watch:
Globalstar (GSAT)
Trailing 12-Month Free Cash Flow Margin: 117%
Known for powering the emergency SOS feature in newer Apple iPhones, Globalstar (NASDAQ: GSAT) operates a network of low-earth orbit satellites that provide voice and data communications services in remote areas where traditional cellular networks don't reach.
Why Does GSAT Stand Out?
- Annual revenue growth of 16.3% over the last two years was superb and indicates its market share increased during this cycle
- Additional sales over the last two years increased its profitability as the 55.5% annual growth in its earnings per share outpaced its revenue
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its recently improved profitability means it has even more resources to invest or distribute
At $44.26 per share, Globalstar trades at 38.3x forward EV-to-EBITDA. Is now a good time to buy? See for yourself in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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