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 reinvests wisely to drive long-term success and two best left off your watchlist.
Two Stocks to Sell:
Photronics (PLAB)
Trailing 12-Month Free Cash Flow Margin: 7.5%
Sporting a global footprint of facilities, Photronics (NASDAQ:PLAB) is a manufacturer of photomasks, templates used to transfer patterns onto semiconductor wafers.
Why Does PLAB Give Us Pause?
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Gross margin of 36.2% is below its competitors, leaving less money to invest in areas like marketing and R&D
Photronics’s stock price of $23.13 implies a valuation ratio of 12.3x forward P/E. Check out our free in-depth research report to learn more about why PLAB doesn’t pass our bar.
Schneider (SNDR)
Trailing 12-Month Free Cash Flow Margin: 5.1%
Employing thousands of drivers across the country to make deliveries, Schneider (NYSE:SNDR) makes full truckload and intermodal deliveries regionally and across borders.
Why Do We Steer Clear of SNDR?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 10.2% annually
- Eroding returns on capital suggest its historical profit centers are aging
At $22.37 per share, Schneider trades at 23.5x forward P/E. Dive into our free research report to see why there are better opportunities than SNDR.
One Stock to Watch:
Taboola (TBLA)
Trailing 12-Month Free Cash Flow Margin: 9%
Often appearing as those "You May Also Like" or "Recommended For You" boxes at the bottom of news articles, Taboola (NASDAQ:TBLA) operates a digital platform that recommends personalized content to users across publisher websites, helping both publishers monetize their sites and advertisers reach target audiences.
Why Do We Like TBLA?
- Annual revenue growth of 16.3% over the last two years was superb and indicates its market share increased during this cycle
- Free cash flow margin expanded by 4.5 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
- Returns on capital are increasing as management’s prior bets are starting to bear fruit
Taboola is trading at $3.71 per share, or 13.6x forward EV-to-EBITDA. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
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