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.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. Keeping that in mind, here is one cash-producing company that excels at turning cash into shareholder value and two best left off your watchlist.
Two Stocks to Sell:
Offerpad (OPAD)
Trailing 12-Month Free Cash Flow Margin: 6.1%
Known for giving homeowners cash offers within 24 hours, Offerpad (NYSE: OPAD) operates a tech-enabled platform specializing in direct home buying and selling solutions.
Why Should You Sell OPAD?
- Demand for its offerings was relatively low as its number of homes purchased has underwhelmed
- Cash-burning history makes us doubt the long-term viability of its business model
- Negative earnings profile makes it challenging to secure favorable financing terms from lenders
Offerpad’s stock price of $4.02 implies a valuation ratio of 0.2x forward price-to-sales. Check out our free in-depth research report to learn more about why OPAD doesn’t pass our bar.
Illinois Tool Works (ITW)
Trailing 12-Month Free Cash Flow Margin: 17.3%
Founded by Byron Smith, an investor who held over 100 patents, Illinois Tool Works (NYSE: ITW) manufactures engineered components and specialized equipment for numerous industries.
Why Are We Wary of ITW?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.7%
- Earnings per share lagged its peers over the last two years as they only grew by 6.2% annually
At $259.20 per share, Illinois Tool Works trades at 24.4x forward P/E. Read our free research report to see why you should think twice about including ITW in your portfolio.
One Stock to Watch:
Boston Scientific (BSX)
Trailing 12-Month Free Cash Flow Margin: 18.8%
Founded in 1979 with a mission to advance less-invasive medicine, Boston Scientific (NYSE: BSX) develops and manufactures medical devices used in minimally invasive procedures across cardiovascular, urological, neurological, and gastrointestinal specialties.
Why Does BSX Catch Our Eye?
- Average organic revenue growth of 15.6% over the past two years demonstrates its ability to expand independently without relying on acquisitions
- Forecasted revenue growth of 13.5% for the next 12 months indicates its momentum over the last two years is sustainable
- Additional sales over the last five years increased its profitability as the 18.4% annual growth in its earnings per share outpaced its revenue
Boston Scientific is trading at $97.67 per share, or 32.1x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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