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 are two cash-producing companies that excel at turning cash into shareholder value and one best left off your watchlist.
One Stock to Sell:
Parsons (PSN)
Trailing 12-Month Free Cash Flow Margin: 6.4%
Delivering aerospace technology during the Cold War-era, Parsons (NYSE: PSN) offers engineering, construction, and cybersecurity solutions for the infrastructure and defense sectors.
Why Do We Think Twice About PSN?
- Flat backlog over the past two years has disappointed and shows fewer customers signed long-term contracts
- Estimated sales growth of 5.1% for the next 12 months implies demand will slow from its two-year trend
- ROIC of 6.8% reflects management’s challenges in identifying attractive investment opportunities
Parsons is trading at $65.11 per share, or 19.9x forward P/E. To fully understand why you should be careful with PSN, check out our full research report (it’s free).
Two Stocks to Watch:
Booking (BKNG)
Trailing 12-Month Free Cash Flow Margin: 33.8%
Formerly known as The Priceline Group, Booking Holdings (NASDAQ: BKNG) is the world’s largest online travel agency.
Why Are We Fans of BKNG?
- Prominent and differentiated platform results in a best-in-class gross margin of 86.7%
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 31.4% exceeded its revenue gains over the last three years
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
At $4,544 per share, Booking trades at 13.5x forward EV/EBITDA. Is now a good time to buy? Find out in our full research report, it’s free.
Hubbell (HUBB)
Trailing 12-Month Free Cash Flow Margin: 15%
A respected player in the electrical segment, Hubbell (NYSE: HUBB) manufactures electronic products for the construction, industrial, utility, and telecommunications markets.
Why Are We Backing HUBB?
- Annual revenue growth of 9.7% over the last five years beat the sector average and underscores the unique value of its offerings
- Excellent operating margin of 17.6% highlights the efficiency of its business model, and its operating leverage amplified its profits over the last five years
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 19.2% over the last five years outstripped its revenue performance
Hubbell’s stock price of $471.77 implies a valuation ratio of 24x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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