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.
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 leverages its financial strength to beat its competitors and two that may struggle to keep up.
Two Stocks to Sell:
Acushnet (GOLF)
Trailing 12-Month Free Cash Flow Margin: 3.9%
Producer of the acclaimed Titleist Pro V1 golf ball, Acushnet (NYSE: GOLF) is a design and manufacturing company specializing in performance-driven golf products.
Why Do We Steer Clear of GOLF?
- Lackluster 2.2% annual revenue growth over the last two years indicates the company is losing ground to competitors
- Estimated sales growth of 1.1% for the next 12 months is soft and implies weaker demand
- Waning returns on capital imply its previous profit engines are losing steam
Acushnet is trading at $81.29 per share, or 23.5x forward P/E. Dive into our free research report to see why there are better opportunities than GOLF.
United Airlines (UAL)
Trailing 12-Month Free Cash Flow Margin: 6.4%
Founded in 1926, United Airlines Holdings (NASDAQ: UAL) operates a global airline network, providing passenger and cargo air transportation services across domestic and international routes.
Why Does UAL Worry Us?
- Sluggish trends in its revenue passenger miles suggest customers aren’t adopting its solutions as quickly as the company hoped
- Low free cash flow margin of 3.5% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
United Airlines’s stock price of $95.89 implies a valuation ratio of 7.7x forward P/E. If you’re considering UAL for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Match Group (MTCH)
Trailing 12-Month Free Cash Flow Margin: 26.3%
Originally started as a dial-up service before widespread internet adoption, Match (NASDAQ: MTCH) was an early innovator in online dating and today has a portfolio of apps including Tinder, Hinge, Archer, and OkCupid.
Why Are We Fans of MTCH?
- Customer spending is rising as the company has focused on monetization over the last two years, leading to 8.9% annual growth in its average revenue per user
- Disciplined cost controls and effective management resulted in a strong two-year EBITDA margin of 36.3%
- MTCH is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its rising cash conversion increases its margin of safety
At $32.80 per share, Match Group trades at 6.6x forward EV/EBITDA. Is now the right time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
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