A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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:
Planet Fitness (PLNT)
Trailing 12-Month Free Cash Flow Margin: 19.2%
Founded by two brothers who purchased a struggling gym, Planet Fitness (NYSE: PLNT) is a gym franchise that caters to casual fitness users by providing a friendly and inclusive atmosphere.
Why Are We Out on PLNT?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 5.5 percentage points
- Unchanged returns on capital make it difficult for the company’s valuation multiple to re-rate
Planet Fitness is trading at $51.87 per share, or 15.5x forward P/E. To fully understand why you should be careful with PLNT, check out our full research report (it’s free).
Two Stocks to Buy:
Wabtec (WAB)
Trailing 12-Month Free Cash Flow Margin: 13.1%
Also known as Wabtec, Westinghouse Air Brake Technologies (NYSE: WAB) provides equipment, systems, and related software for the railway industry.
Why Will WAB Outperform?
- Offerings and unique value proposition resonate with customers, as seen in its above-market 9.1% annual sales growth over the last five years
- Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Share buybacks catapulted its annual earnings per share growth to 19.9%, which outperformed its revenue gains over the last two years
At $256.55 per share, Wabtec trades at 23.7x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Paymentus (PAY)
Trailing 12-Month Free Cash Flow Margin: 8.2%
Founded in 2004 to simplify the complex world of bill payments, Paymentus (NYSE: PAY) provides a cloud-based platform that helps utilities, municipalities, and service providers automate billing and payment processes.
Why Should You Buy PAY?
- Annual revenue growth of 40.2% over the last two years was superb and indicates its market share increased during this cycle
- Additional sales over the last two years increased its profitability as the 51% annual growth in its earnings per share outpaced its revenue
Paymentus’s stock price of $23.45 implies a valuation ratio of 27.5x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
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