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.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here are two cash-producing companies that excel at turning cash into shareholder value and one that may struggle to keep up.
One Stock to Sell:
Dover (DOV)
Trailing 12-Month Free Cash Flow Margin: 14%
A company that manufactured critical equipment for the United States military during World War II, Dover (NYSE:DOV) manufactures engineered components and specialized equipment for numerous industries.
Why Are We Wary of DOV?
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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
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Estimated sales growth of 5.5% for the next 12 months is soft and implies weaker demand
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Earnings per share lagged its peers over the last two years as they only grew by 5.6% annually
Dover’s stock price of $211.09 implies a valuation ratio of 18.8x forward P/E. Check out our free in-depth research report to learn more about why DOV doesn’t pass our bar.
Two Stocks to Watch:
Flywire (FLYW)
Trailing 12-Month Free Cash Flow Margin: 21.3%
Initially created to solve the challenges of international student tuition payments, Flywire (NASDAQ:FLYW) provides specialized payment processing and software solutions that help educational institutions, healthcare systems, travel companies, and businesses manage complex payments.
Why Could FLYW Be a Winner?
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Billings have averaged 33.9% growth over the last year, showing it’s securing new contracts that could potentially increase in value over time
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Estimated revenue growth of 17.4% for the next 12 months implies its momentum over the last two years will continue
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Free cash flow generation is better than most peers and allows it to explore new investment opportunities
At $17.86 per share, Flywire trades at 2.7x forward price-to-sales. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
LegalZoom (LZ)
Trailing 12-Month Free Cash Flow Margin: 18.9%
Founded by famous lawyer Robert Shapiro, LegalZoom (NASDAQ:LZ) offers online legal services and documentation assistance for individuals and businesses.
Why Are We Positive on LZ?
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Subscription Units are rising, meaning the company can increase revenue without incurring additional customer acquisition costs if it can cross-sell additional products and features
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Strong engagement trends coupled with 17.2% annual growth in its average revenue per user demonstrate its platform’s stickiness with die-hard customers
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Disciplined cost controls and effective management resulted in a strong two-year EBITDA margin of 23.1%, and its operating leverage amplified its profits over the last few years
