Yahoo Finance

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. 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 Industrials Stocks to Sell:

Rockwell Automation (ROK)

Trailing 12-Month Free Cash Flow Margin: 12%

One of the first companies to address industrial automation, Rockwell Automation (NYSE:ROK) sells products that help customers extract more efficiency from their machinery.

Why Do We Avoid ROK?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion

2. Free cash flow margin dropped by 6.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up

3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $238.84 per share, Rockwell Automation trades at 24.5x forward price-to-earnings. Check out our free in-depth research report to learn more about why ROK doesn’t pass our bar.

BrightView (BV)

Trailing 12-Month Free Cash Flow Margin: 4.8%

An official field consultant for Major League Baseball, BrightView (NYSE:BV) offers landscaping design, development, and maintenance.

Why Do We Pass on BV?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.8% annually over the last two years

2. Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term

3. Underwhelming 2% return on capital reflects management’s difficulties in finding profitable growth opportunities

BrightView’s stock price of $13.59 implies a valuation ratio of 15.3x forward price-to-earnings. To fully understand why you should be careful with BV, check out our full research report (it’s free).

One Industrials Stock to Buy:

AZEK (AZEK)

Trailing 12-Month Free Cash Flow Margin: 11.7%

With a significant portion of its products made from recycled materials, AZEK (NYSE:AZEK) designs and manufactures goods for outdoor living spaces.

Why Are We Bullish on AZEK?

1. Core business is healthy and doesn’t need acquisitions to boost sales as its organic revenue growth averaged 10.7% over the past two years

2. Operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient

3. Share repurchases over the last two years enabled its annual earnings per share growth of 41.3% to outpace its revenue gains