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. That said, here are two cash-producing companies that reinvest wisely to drive long-term success and one that may struggle to keep up.
One Stock to Sell:
Kohl's (KSS)
Trailing 12-Month Free Cash Flow Margin: 6.8%
Founded as a corner grocery store in Milwaukee, Wisconsin, Kohl’s (NYSE: KSS) is a department store chain that sells clothing, cosmetics, electronics, and home goods.
Why Do We Avoid KSS?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
- High net-debt-to-EBITDA ratio of 5× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Kohl’s stock price of $16.21 implies a valuation ratio of 11.1x forward P/E. Dive into our free research report to see why there are better opportunities than KSS.
Two Stocks to Watch:
Howmet (HWM)
Trailing 12-Month Free Cash Flow Margin: 19.2%
Inventing the first forged aluminum truck wheel, Howmet (NYSE: HWM) specializes in lightweight metals engineering and manufacturing multi-material components used in vehicles.
Why Do We Love HWM?
- Impressive 12.3% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Share repurchases over the last two years enabled its annual earnings per share growth of 43.7% to outpace its revenue gains
- Free cash flow margin increased by 13.2 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Howmet is trading at $246.20 per share, or 47.8x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Kirby (KEX)
Trailing 12-Month Free Cash Flow Margin: 14.5%
Transporting goods along all U.S. coasts, Kirby (NYSE: KEX) provides inland and coastal marine transportation services.
Why Are We Fans of KEX?
- Market share has increased this cycle as its 11.1% annual revenue growth over the last five years was exceptional
- Share buybacks catapulted its annual earnings per share growth to 24%, which outperformed its revenue gains over the last two years
- Free cash flow margin jumped by 8.9 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
At $141.66 per share, Kirby trades at 19.6x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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