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. That said, here are two cash-producing companies that leverage their financial strength to beat the competition and one that may struggle to keep up.
One stock to sell:
Packaging Corporation of America (PKG)
Trailing 12-month free cash flow margin: 6.1%
Founded in 1959, Packaging Corporation of America (NYSE: PKG) produces containerboard and corrugated packaging products as well as displays and package protection.
Why Is PKG Not Exciting?
- 5.8% annual revenue growth over the last five years was slower than its industrials peers
- Efficiency has decreased over the last five years as its operating margin fell by 6.3 percentage points
- Eroding returns on capital suggest its historical profit centers are aging
Packaging Corporation of America’s stock price of $253.89 implies a valuation ratio of 18.9x forward P/E. To fully understand why you should be careful with PKG, check out our full research report (it’s free).
Two stocks to watch:
MongoDB (MDB)
Trailing 12-month free cash flow margin: 23.4%
Named after "humongous database," reflecting its ability to handle massive data loads, MongoDB (NASDAQ: MDB) provides a flexible document-based database platform that helps developers build, deploy, and maintain modern applications more efficiently.
Why Could MDB Be a Winner?
- Billings have averaged 32.4% growth over the last year, showing it’s securing new contracts that could potentially increase in value over time
- Sales outlook for the upcoming 12 months implies the business will stay on its desirable two-year growth trajectory
- Adequate gross margin of 72.7% gives it sufficient room to spend on marketing and product development
MongoDB is trading at $351.07 per share, or 9.6x forward price-to-sales. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Lyft (LYFT)
Trailing 12-month free cash flow margin: 16.4%
Founded by Logan Green and John Zimmer as a long-distance intercity carpooling company Zimride, Lyft (NASDAQ: LYFT) operates a ridesharing network in the US and Canada.
Why Is LYFT a Good Business?
- Active Riders are rising, meaning the company can increase revenue without incurring additional customer acquisition costs if it can cross-sell additional products and features
- Additional sales over the last three years increased its profitability as the 70.4% annual growth in its earnings per share outpaced its revenue
- Free cash flow margin increased by 24.8 percentage points over the last few years, giving the company more capital to invest or return to shareholders
At $16.04 per share, Lyft trades at 7.2x forward EV/EBITDA. Is now the right time to buy? Find out in our full research report, it’s free.
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