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. That said, here is one cash-producing company that excels at turning cash into shareholder value and two that may face some trouble.
Two Stocks to Sell:
Carnival (CCL)
Trailing 12-Month Free Cash Flow Margin: 11.1%
Boasting outrageous amenities like a planetarium on board its ships, Carnival (NYSE: CCL) is one of the world's largest leisure travel companies and a prominent player in the cruise industry.
Why Do We Avoid CCL?
- Sluggish trends in its passenger cruise days suggest customers aren’t adopting its solutions as quickly as the company hoped
- Poor free cash flow margin of 9.5% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $25.78 per share, Carnival trades at 12.2x forward P/E. To fully understand why you should be careful with CCL, check out our full research report (it’s free).
Republic Services (RSG)
Trailing 12-Month Free Cash Flow Margin: 14.7%
Processing several million tons of recyclables annually, Republic (NYSE: RSG) provides waste management services for residences, companies, and municipalities.
Why Are We Hesitant About RSG?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 5.3% for the last two years
- Flat unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy
- Estimated sales growth of 3.2% for the next 12 months implies demand will slow from its two-year trend
Republic Services’s stock price of $223.19 implies a valuation ratio of 30.5x forward P/E. If you’re considering RSG for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Medpace (MEDP)
Trailing 12-Month Free Cash Flow Margin: 26.9%
Founded in 1992 as a scientifically-driven alternative to traditional contract research organizations, Medpace (NASDAQ: MEDP) provides outsourced clinical trial management and research services to help pharmaceutical, biotechnology, and medical device companies develop new treatments.
Why Do We Watch MEDP?
- Core business is healthy and doesn’t need acquisitions to boost sales as its organic revenue growth averaged 15.9% over the past two years
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 31.7% exceeded its revenue gains over the last five years
- Free cash flow margin grew by 6.4 percentage points over the last five years, giving the company more chips to play with
Medpace is trading at $483.75 per share, or 28x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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