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 are two cash-producing companies that excel at turning cash into shareholder value and one that may face some trouble.
One Stock to Sell:
Encompass Health (EHC)
Trailing 12-Month Free Cash Flow Margin: 13.8%
With a network of 161 specialized facilities across 37 states and Puerto Rico, Encompass Health (NYSE: EHC) operates inpatient rehabilitation hospitals that help patients recover from strokes, hip fractures, and other debilitating conditions.
Why Are We Wary of EHC?
- Sales trends were unexciting over the last five years as its 5% annual growth was below the typical healthcare company
- Disappointing comparable store sales over the past two years show customers aren’t responding well to its offerings and value proposition
Encompass Health is trading at $101.57 per share, or 17.2x forward P/E. If you’re considering EHC for your portfolio, see our FREE research report to learn more.
Two Stocks to Watch:
Western Digital (WDC)
Trailing 12-Month Free Cash Flow Margin: 21.5%
Founded in 1970 by a Motorola employee, Western Digital (NASDAQ: WDC) is a leading producer of hard disk drives, SSDs and flash memory.
Why Are We Fans of WDC?
- Market share is on track to rise over the next 12 months as its 31.9% projected revenue growth implies demand will accelerate from its two-year trend
- Operating margin expansion of 16.1 percentage points over the last five years shows the company optimized its expenses
- Free cash flow margin jumped by 14.7 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
At $319.43 per share, Western Digital trades at 27.8x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Nova (NVMI)
Trailing 12-Month Free Cash Flow Margin: 24.7%
Headquartered in Israel, Nova (NASDAQ: NVMI) is a provider of quality control systems used in semiconductor manufacturing.
Why Should You Buy NVMI?
- Impressive 30.4% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Earnings per share grew by 33.2% annually over the last five years and trumped its peers
- NVMI is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Nova’s stock price of $455.41 implies a valuation ratio of 43.1x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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