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 excels at turning cash into shareholder value and two that may struggle to keep up.
Two Stocks to Sell:
Five9 (FIVN)
Trailing 12-Month Free Cash Flow Margin: 11.3%
Taking its name from the "five nines" (99.999%) standard for optimal service reliability in telecommunications, Five9 (NASDAQ:FIVN) provides cloud-based software that enables businesses to run their contact centers with tools for customer service, sales, and marketing across multiple communication channels.
Why Are We Cautious About FIVN?
- Offerings struggled to generate meaningful interest as its average billings growth of 10.5% over the last year did not impress
- Estimated sales growth of 8.2% for the next 12 months implies demand will slow from its two-year trend
- Sky-high servicing costs result in an inferior gross margin of 55.4% that must be offset through increased usage
At $17.78 per share, Five9 trades at 1.3x forward price-to-sales. Check out our free in-depth research report to learn more about why FIVN doesn’t pass our bar.
MGP Ingredients (MGPI)
Trailing 12-Month Free Cash Flow Margin: 10.7%
Headquartered in Atchison, Kansas, MGP Ingredients (NASDAQ:MGPI) is a leading supplier of high-quality ingredients to the food and beverage industry
Why Do We Steer Clear of MGPI?
- Products aren't resonating with the market as its revenue declined by 8.6% annually over the last three years
- Sales are projected to tank by 12% over the next 12 months as its demand continues evaporating
- Inability to adjust its cost structure while its revenue declined over the last year led to a 18.3 percentage point drop in the company’s operating margin
MGP Ingredients’s stock price of $22.75 implies a valuation ratio of 9.3x forward P/E. Dive into our free research report to see why there are better opportunities than MGPI.
One Stock to Watch:
PTC (PTC)
Trailing 12-Month Free Cash Flow Margin: 31.3%
Originally known as Parametric Technology Corporation until its 2013 rebranding, PTC (NASDAQ:PTC) provides software that helps manufacturers design, develop, and service physical products through digital solutions for CAD, PLM, ALM, and SLM.
Why Does PTC Stand Out?
- Superior software functionality and low servicing costs are reflected in its stellar gross margin of 83.8%
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
- Disciplined cost controls and effective management resulted in a strong trailing 12-month operating margin of 35.9%, and its operating leverage amplified its profits over the last year
PTC is trading at $170.30 per share, or 7.4x forward price-to-sales. Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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