Cash-generating companies often have the flexibility to invest, return capital to shareholders, or navigate downturns. The best of these businesses not only accumulate cash but deploy it strategically for growth.
Identifying the most effective companies isn’t easy, and that’s why we started StockStory. Keeping that in mind, here are three cash-producing companies that reinvest wisely to drive long-term success.
Duolingo (DUOL)
Trailing 12-Month Free Cash Flow Margin: 36.9%
Founded by a Carnegie Mellon computer science professor and his Ph.D. student, Duolingo (NASDAQ: DUOL) is a mobile app helping people learn new languages.
Why Will DUOL Beat the Market?
- Monthly Active Users have increased by an average of 677% annually, giving it the potential for margin-accretive growth if it can develop valuable complementary products and features
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 145% over the last three years outstripped its revenue performance
- DUOL is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its improved cash conversion implies it’s becoming a less capital-intensive business
Duolingo’s stock price of $104.43 implies a valuation ratio of 12.6x forward EV/EBITDA. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Abercrombie and Fitch (ANF)
Trailing 12-Month Free Cash Flow Margin: 7.2%
Founded as an outdoor and sporting brand, Abercrombie & Fitch (NYSE: ANF) evolved to become a specialty retailer that sells its own brand of fashionable clothing to young adults.
Why Do We Love ANF?
- Same-store sales growth averaged 10% over the past two years, showing it’s bringing new and repeat shoppers into its stores
- Unique assortment of products and pricing power lead to a best-in-class gross margin of 62.8%
- Share repurchases over the last three years enabled its annual earnings per share growth of 481% to outpace its revenue gains
At $78.85 per share, Abercrombie and Fitch trades at 7.3x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Badger Meter (BMI)
Trailing 12-Month Free Cash Flow Margin: 18.9%
The developer of the world’s first frost-proof water meter in 1905, Badger Meter (NYSE: BMI) provides water control and measure equipment to various industries.
Why Is BMI a Good Business?
- Annual revenue growth of 15.6% over the last five years was superb and indicates its market share increased during this cycle
- Incremental sales over the last five years have been highly profitable as its earnings per share increased by 20.3% annually, topping its revenue gains
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its rising cash conversion increases its margin of safety
Badger Meter is trading at $123.75 per share, or 26.2x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
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