A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, here are two cash-producing companies that leverage their financial strength to beat the competition and one that may face some trouble.
One Stock to Sell:
Sprout Social (SPT)
Trailing 12-Month Free Cash Flow Margin: 8.6%
Born from the recognition that businesses needed a centralized way to handle their growing social media presence, Sprout Social (NASDAQ: SPT) provides a comprehensive software platform that helps businesses manage, analyze, and optimize their presence across various social media networks.
Why Do We Think Twice About SPT?
- Offerings struggled to generate meaningful interest as its average billings growth of 8.7% over the last year did not impress
- Estimated sales growth of 7.8% for the next 12 months implies demand will slow from its two-year trend
- Operating losses show it sacrificed profitability while scaling the business
Sprout Social is trading at $5.73 per share, or 0.7x forward price-to-sales. If you’re considering SPT for your portfolio, see our FREE research report to learn more.
Two Stocks to Watch:
Advanced Drainage (WMS)
Trailing 12-Month Free Cash Flow Margin: 19.3%
Originally started as a farm water drainage company, Advanced Drainage Systems (NYSE: WMS) provides clean water management solutions to communities across America.
Why Are We Positive On WMS?
- Disciplined cost controls and effective management resulted in a strong long-term operating margin of 21.6%, and its profits increased over the last five years as it scaled
- Free cash flow margin expanded by 16.3 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
- Industry-leading 22.8% return on capital demonstrates management’s skill in finding high-return investments, and its rising returns show it’s making even more lucrative bets
Advanced Drainage’s stock price of $133.86 implies a valuation ratio of 20.7x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
Nutanix (NTNX)
Trailing 12-Month Free Cash Flow Margin: 28.9%
Originally pioneering hyperconverged infrastructure to break down traditional data center silos, Nutanix (NASDAQ: NTNX) provides a unified software platform that enables organizations to run applications and manage data across private, public, and hybrid cloud environments.
Why Could NTNX Be a Winner?
- Superior software functionality and low servicing costs are reflected in its best-in-class gross margin of 87.1%
- User-friendly software enables clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
- Robust free cash flow margin of 28.9% gives it many options for capital deployment
At $39.46 per share, Nutanix trades at 3.8x forward price-to-sales. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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