While strong cash flow is a key indicator of stability, it doesn’t always translate to superior returns. Some cash-heavy businesses struggle with inefficient spending, slowing demand, or weak competitive positioning.
Luckily for you, we built StockStory to help you separate the good from the bad. That said, here is one cash-producing company that excels at turning cash into shareholder value and two that may face some trouble.
Two Stocks to Sell:
Clean Harbors (CLH)
Trailing 12-Month Free Cash Flow Margin: 8.3%
Established in 1980, Clean Harbors (NYSE:CLH) provides environmental and industrial services like hazardous and non-hazardous waste disposal and emergency spill cleanups.
Why Are We Hesitant About CLH?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Estimated sales growth of 3.3% for the next 12 months implies demand will slow from its two-year trend
- Earnings per share lagged its peers over the last two years as they only grew by 5% annually
At $265.99 per share, Clean Harbors trades at 33.5x forward P/E. Dive into our free research report to see why there are better opportunities than CLH.
ABM (ABM)
Trailing 12-Month Free Cash Flow Margin: 1.8%
With roots dating back to 1909 as a window washing company, ABM Industries (NYSE:ABM) provides integrated facility management, infrastructure, and mobility solutions across various sectors including commercial, manufacturing, education, and aviation.
Why Does ABM Give Us Pause?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Earnings per share were flat over the last two years while its revenue grew, showing its incremental sales were less profitable
- Weak free cash flow margin of 1.9% has deteriorated further over the last five years as its investments increased
ABM is trading at $47.57 per share, or 11.8x forward P/E. If you’re considering ABM for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Trupanion (TRUP)
Trailing 12-Month Free Cash Flow Margin: 5.1%
Born from a vision to help pet owners avoid economic euthanasia when faced with expensive veterinary bills, Trupanion (NASDAQ:TRUP) provides medical insurance for cats and dogs through data-driven, vertically-integrated products priced specifically for each pet's unique characteristics.
Why Will TRUP Outperform?
- Annual revenue growth of 24.7% over the last five years was superb and indicates its market share increased during this cycle
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 51.1% over the last two years outstripped its revenue performance
- Impressive 16% annual book value per share growth over the last five years indicates it’s building equity value this cycle
Trupanion’s stock price of $33.17 implies a valuation ratio of 3.8x forward P/B. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
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