A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Luckily for you, we built StockStory to help you separate the good from the bad. That said, here is one cash-producing company that reinvests wisely to drive long-term success and two that may face some trouble.
Two Stocks to Sell:
General Motors (GM)
Trailing 12-Month Free Cash Flow Margin: 7.9%
Founded in 1908 by William C. Durant, General Motors (NYSE: GM) offers a range of vehicles and automobiles through brands such as Chevrolet, Buick, GMC, and Cadillac.
Why Are We Wary of GM?
- Disappointing unit sales over the past two years imply it may need to invest in improvements to get back on track
- Estimated sales decline of 1% for the next 12 months implies a challenging demand environment
- Gross margin of 12.2% is below its competitors, leaving less money to invest in areas like marketing and R&D
General Motors is trading at $81.83 per share, or 7.4x forward P/E. To fully understand why you should be careful with GM, check out our full research report (it’s free for active Edge members).
GoodRx (GDRX)
Trailing 12-Month Free Cash Flow Margin: 22.1%
Started in 2011 to tackle the problem of high prescription drug costs in America, GoodRx (NASDAQ: GDRX) operates a digital platform that helps consumers find lower prices on prescription medications through price comparison tools and discount codes.
Why Do We Avoid GDRX?
- Customer additions have disappointed over the past two years, indicating the company’s value proposition may not be resonating
- Modest revenue base of $800.7 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Negative returns on capital show that some of its growth strategies have backfired
GoodRx’s stock price of $2.70 implies a valuation ratio of 6.8x forward P/E. Dive into our free research report to see why there are better opportunities than GDRX.
One Stock to Watch:
Barrett (BBSI)
Trailing 12-Month Free Cash Flow Margin: 2.2%
Operating as a professional employer organization (PEO) that serves over 8,000 companies with more than 120,000 worksite employees, Barrett Business Services (NASDAQ: BBSI) provides management solutions that help small and mid-sized businesses handle human resources, payroll, workers' compensation, and other administrative functions.
Why Are We Positive On BBSI?
- 7.2% annual revenue growth over the last two years surpassed the sector average as its services resonated with customers
- Share buybacks propelled its annual earnings per share growth to 10.9%, which outperformed its revenue gains over the last five years
- ROIC punches in at 54.6%, illustrating management’s expertise in identifying profitable investments
At $36.21 per share, Barrett trades at 16x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
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