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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.
Cash flow is valuable, but it’s not everything - StockStory helps you identify the companies that truly put it to work. Keeping that in mind, here is one cash-producing company that reinvests wisely to drive long-term success and two that may struggle to keep up.
Two Stocks to Sell:
Delta (DAL)
Trailing 12-Month Free Cash Flow Margin: 4.5%
One of the ‘Big Four’ airlines in the US, Delta Air Lines (NYSE:DAL) is a major global air carrier that serves both business and leisure travelers through its domestic and international flights.
Why Are We Out on DAL?
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Performance surrounding its revenue passenger miles has lagged its peers
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Projected sales decline of 1.6% for the next 12 months points to a tough demand environment ahead
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Negative returns on capital show management lost money while trying to expand the business
At $41.80 per share, Delta trades at 6.7x forward price-to-earnings. Check out our free in-depth research report to learn more about why DAL doesn’t pass our bar.
FTI Consulting (FCN)
Trailing 12-Month Free Cash Flow Margin: 4.3%
With a team of experts deployed across 30+ countries to tackle complex business challenges, FTI Consulting (NYSE:FCN) is a global business advisory firm that helps organizations manage change, mitigate risk, and resolve disputes across financial, legal, operational, and regulatory matters.
Why Does FCN Worry Us?
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Estimated sales growth of 2.1% for the next 12 months implies demand will slow from its two-year trend
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Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 2.8 percentage points
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Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.6 percentage points
FTI Consulting’s stock price of $166.28 implies a valuation ratio of 20.6x forward price-to-earnings. If you’re considering FCN for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Booz Allen Hamilton (BAH)
Trailing 12-Month Free Cash Flow Margin: 7.2%
With roots dating back to 1914 and deep ties to nearly all U.S. cabinet-level departments, Booz Allen Hamilton (NYSE:BAH) provides management consulting, technology services, and cybersecurity solutions primarily to U.S. government agencies and military branches.
Why Do We Love BAH?
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Core business can prosper without any help from acquisitions as its organic revenue growth averaged 13.2% over the past two years
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$11.78 billion in revenue allows it to spread its fixed costs across a wider base
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Share repurchases have amplified shareholder returns as its annual earnings per share growth of 14.5% exceeded its revenue gains over the last five years