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 leverages its financial strength to beat its competitors and two that may face some trouble.
Two Stocks to Sell:
MYR Group (MYRG)
Trailing 12-Month Free Cash Flow Margin: 4.4%
Constructing electrical and phone lines in the American Midwest dating back to the 1890s, MYR Group (NASDAQ:MYRG) is a specialty contractor in the electrical construction industry.
Why Are We Hesitant About MYRG?
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 4.3% declines over the past two years
- Gross margin of 10.8% reflects its high production costs
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $226.42 per share, MYR Group trades at 26.5x forward P/E. Check out our free in-depth research report to learn more about why MYRG doesn’t pass our bar.
Crane NXT (CXT)
Trailing 12-Month Free Cash Flow Margin: 12.5%
Born from a corporate transformation completed in 2023, Crane NXT (NYSE:CXT) provides specialized technology solutions for payment processing, banknote security, and authentication systems for financial institutions and businesses.
Why Do We Pass on CXT?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 6.3% annually
- Capital intensity has ramped up over the last four years as its free cash flow margin decreased by 11.5 percentage points
Crane NXT is trading at $57.10 per share, or 12.7x forward P/E. Read our free research report to see why you should think twice about including CXT in your portfolio, it’s free for active Edge members.
One Stock to Buy:
Alphabet (GOOGL)
Trailing 12-Month Free Cash Flow Margin: 19.1%
Started by Stanford students Larry Page and Sergey Brin in a Menlo Park garage, Alphabet (NASDAQ:GOOGL) is the parent company of the eponymous Google Search engine, Google Cloud Platform, and YouTube.
Why Do We Love GOOGL?
- Alphabet’s dominant Google Search sits on the pantheon of the best businesses ever. This is reflected in its robust long-term revenue growth and elite operating margin.
- The company’s profit margins have become even higher over time, speaking to its scale advantages and operating efficiency not only in its core Search business but also in Google Cloud Platform and YouTube.
- Revenue growth and increasing operating margins are the key ingredients for strong EPS growth. Google has these, and when also factoring in its share repurchases, you can see why EPS has exploded over the long term.
Alphabet’s stock price of $319.34 implies a valuation ratio of 29.8x forward price-to-earnings. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.