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. Keeping that in mind, here are two cash-producing companies that leverage their financial strength to beat the competition and one that may face some trouble.
One Stock to Sell:
Garrett Motion (GTX)
Trailing 12-Month Free Cash Flow Margin: 11.3%
A key player in the transition to cleaner vehicles, Garrett Motion (NYSE: GTX) designs and manufactures turbochargers, air compressors, and electric motor technologies for vehicle manufacturers and industrial applications.
Why Does GTX Fall Short?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.8% annually over the last two years
- Estimated sales growth of 3.8% for the next 12 months is soft and implies weaker demand
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 19.8%
Garrett Motion is trading at $33.89 per share, or 1.7x forward price-to-sales. Check out our free in-depth research report to learn more about why GTX doesn’t pass our bar.
Two Stocks to Buy:
AutoZone (AZO)
Trailing 12-Month Free Cash Flow Margin: 8.2%
Aiming to be a one-stop shop for the DIY customer, AutoZone (NYSE: AZO) is an auto parts and accessories retailer that sells everything from car batteries to windshield wiper fluid to brake pads.
Why Will AZO Beat the Market?
- Same-store sales growth averaged 3.2% over the past two years, showing it’s bringing new and repeat shoppers into its stores
- Excellent operating margin of 19% highlights the efficiency of its business model
- Market-beating returns on capital illustrate that management has a knack for investing in profitable ventures
AutoZone’s stock price of $3,095 implies a valuation ratio of 20.3x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Hubbell (HUBB)
Trailing 12-Month Free Cash Flow Margin: 15.2%
A respected player in the electrical segment, Hubbell (NYSE: HUBB) manufactures electronic products for the construction, industrial, utility, and telecommunications markets.
Why Is HUBB a Good Business?
- Solid 10.2% annual revenue growth over the last five years indicates its offering’s solve complex business issues
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 19.7% exceeded its revenue gains over the last five years
- Free cash flow margin grew by 7.2 percentage points over the last five years, giving the company more chips to play with
At $479.94 per share, Hubbell trades at 23.5x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
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