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. Keeping that in mind, here is one cash-producing company that leverages its financial strength to beat its competitors and two best left off your watchlist.
Two Stocks to Sell:
Cisco (CSCO)
Trailing 12-Month Free Cash Flow Margin: 22.1%
Founded in 1984 by a husband and wife team who wanted computers at Stanford to talk to computers at UC Berkeley, Cisco (NASDAQ: CSCO) designs and sells networking equipment, security solutions, and collaboration tools that help businesses connect their systems and secure their digital operations.
Why Does CSCO Give Us Pause?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- 5.8 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Eroding returns on capital suggest its historical profit centers are aging
Cisco is trading at $83.29 per share, or 19.2x forward P/E. Dive into our free research report to see why there are better opportunities than CSCO.
Cognex (CGNX)
Trailing 12-Month Free Cash Flow Margin: 22%
Founded in 1981 when computer vision was in its infancy, Cognex (NASDAQ: CGNX) develops machine vision systems and software that help manufacturers and logistics companies automate quality inspection and tracking of products.
Why Should You Sell CGNX?
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 12.9 percentage points
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 10.2 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Cognex’s stock price of $40.87 implies a valuation ratio of 37.4x forward P/E. Check out our free in-depth research report to learn more about why CGNX doesn’t pass our bar.
One Stock to Buy:
Oscar Health (OSCR)
Trailing 12-Month Free Cash Flow Margin: 6.5%
Founded in 2012 to simplify the notoriously complex American healthcare system, Oscar Health (NYSE: OSCR) is a technology-focused health insurance company that offers individual and small group health plans through its cloud-native platform.
Why Is OSCR a Top Pick?
- Annual revenue growth of 39.7% over the past two years was outstanding, reflecting market share gains this cycle
- Earnings growth has massively outpaced its peers over the last four years as its EPS has compounded at 30.3% annually
- Free cash flow margin expanded by 12.8 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
At $13.89 per share, Oscar Health trades at 0.3x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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