While strong cash flow is a key indicator of stability, it doesn’t always translate to superior returns. Some cash-heavy businesses struggle with inefficient spending, slowing demand, or weak competitive positioning.
Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here is one cash-producing company that leverages its financial strength to beat its competitors and two that may face some trouble.
Two Stocks to Sell:
Service International (SCI)
Trailing 12-Month Free Cash Flow Margin: 14.7%
Founded in 1962, Service International (NYSE: SCI) is a leading provider of death care products and services in North America.
Why Are We Hesitant About SCI?
- Number of funeral services performed has disappointed over the past two years, indicating weak demand for its offerings
- Estimated sales growth of 3% for the next 12 months is soft and implies weaker demand
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
Service International’s stock price of $80.09 implies a valuation ratio of 20.3x forward P/E. To fully understand why you should be careful with SCI, check out our full research report (it’s free).
Jabil (JBL)
Trailing 12-Month Free Cash Flow Margin: 4.3%
With manufacturing facilities spanning the globe from China to Mexico to the United States, Jabil (NYSE: JBL) provides electronics design, manufacturing, and supply chain solutions to companies across various industries, from healthcare to automotive to cloud computing.
Why Are We Wary of JBL?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 10.1% annually over the last two years
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 1.6% annually
- Low free cash flow margin of 3.1% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
At $214.06 per share, Jabil trades at 21.2x forward P/E. If you’re considering JBL for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Warby Parker (WRBY)
Trailing 12-Month Free Cash Flow Margin: 6.4%
Founded in 2010, Warby Parker (NYSE: WRBY) designs, manufactures, and sells eyewear, including prescription glasses, sunglasses, and contact lenses, through its e-commerce platform and physical retail locations.
Why Are We Positive On WRBY?
- Rapidly increasing store base reflects a desire to sell in new markets and scale quickly
- Differentiated product assortment results in a best-in-class gross margin of 54.9%
- Earnings per share grew by 68.5% annually over the last three years, massively outpacing its peers
Warby Parker is trading at $27.55 per share, or 75.5x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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