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.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. That said, here is one cash-producing company that leverages its financial strength to beat its competitors and two that may face some trouble.
Two Stocks to Sell:
Teradyne (TER)
Trailing 12-Month Free Cash Flow Margin: 20.9%
Sporting most major chip manufacturers as its customers, Teradyne (NASDAQ: TER) is a US-based supplier of automated test equipment for semiconductors as well as other technologies and devices.
Why Is TER Not Exciting?
- Annual revenue growth of 3% over the last five years was below our standards for the semiconductor sector
- Anticipated sales growth of 2.4% for the next year implies demand will be shaky
- Efficiency has decreased over the last five years as its operating margin fell by 7.9 percentage points
Teradyne is trading at $91.44 per share, or 25.2x forward P/E. If you’re considering TER for your portfolio, see our FREE research report to learn more.
Tennant (TNC)
Trailing 12-Month Free Cash Flow Margin: 4.8%
As the world’s largest manufacturer of autonomous mobile robots, Tennant (NYSE: TNC) designs, manufactures, and sells cleaning products to various sectors.
Why Are We Hesitant About TNC?
- 2.3% annual revenue growth over the last five years was slower than its industrials peers
- Sales are projected to tank by 1% over the next 12 months as demand evaporates
- Free cash flow margin shrank by 7.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Tennant’s stock price of $77.61 implies a valuation ratio of 12.5x forward P/E. Check out our free in-depth research report to learn more about why TNC doesn’t pass our bar.
One Stock to Buy:
Robinhood (HOOD)
Trailing 12-Month Free Cash Flow Margin: 32.4%
With a mission to democratize finance, Robinhood (NASDAQ: HOOD) is an online consumer finance platform known for its commission-free stock and crypto trading.
Why Should You Buy HOOD?
- 43.1% annual increases in its average revenue per user over the last two years show its platform is resonating with power users
- Incremental sales over the last three years have been highly profitable as its earnings per share increased by 64.6% annually, topping its revenue gains
- Free cash flow margin jumped by 1,103.9 percentage points over the last few years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
At $84.64 per share, Robinhood trades at 38.4x forward EV/EBITDA. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
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