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. Keeping that in mind, 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:
Marriott Vacations (VAC)
Trailing 12-Month Free Cash Flow Margin: 1.4%
Spun off from Marriott International in 1984, Marriott Vacations (NYSE: VAC) is a vacation company providing leisure experiences for travelers around the world.
Why Do We Pass on VAC?
- Sluggish trends in its conducted tours suggest customers aren’t adopting its solutions as quickly as the company hoped
- ROIC of 5.5% reflects management’s challenges in identifying attractive investment opportunities
- High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Marriott Vacations’s stock price of $75 implies a valuation ratio of 10.4x forward P/E. To fully understand why you should be careful with VAC, check out our full research report (it’s free).
Bio-Techne (TECH)
Trailing 12-Month Free Cash Flow Margin: 21%
With a catalog of hundreds of thousands of specialized biological products used in laboratories worldwide, Bio-Techne (NASDAQ: TECH) develops and manufactures specialized reagents, instruments, and services that help researchers study biological processes and enable diagnostic testing and cell therapy development.
Why Should You Sell TECH?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Smaller revenue base of $1.22 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Free cash flow margin shrank by 12 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $53.74 per share, Bio-Techne trades at 26.2x forward P/E. If you’re considering TECH for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Zscaler (ZS)
Trailing 12-Month Free Cash Flow Margin: 27.1%
After successfully selling all four of his previous cybersecurity companies, Jay Chaudhry's fifth venture, Zscaler (NASDAQ: ZS) offers software-as-a-service that helps companies securely connect to applications and networks in the cloud.
Why Do We Like ZS?
- Ability to secure long-term commitments with customers is evident in its 24.3% ARR growth over the last year
- Sales outlook for the upcoming 12 months implies the business will stay on its desirable three-year growth trajectory
- ZS is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Zscaler is trading at $271 per share, or 13.7x forward price-to-sales. 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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