In This Article:
A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
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 are two cash-producing companies that reinvest wisely to drive long-term success and one that may struggle to keep up.
One Stock to Sell:
Mettler-Toledo (MTD)
Trailing 12-Month Free Cash Flow Margin: 22.7%
With roots dating back to the precision balance innovations of Swiss engineer Erhard Mettler, Mettler-Toledo (NYSE:MTD) manufactures precision weighing instruments, analytical equipment, and product inspection systems used in laboratories, industrial settings, and food retail.
Why Are We Cautious About MTD?
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Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
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Projected sales growth of 3.4% for the next 12 months suggests sluggish demand
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Static adjusted operating margin over the last two years shows it couldn’t become more efficient
Mettler-Toledo is trading at $1,100 per share, or 25.3x forward P/E. Read our free research report to see why you should think twice about including MTD in your portfolio, it’s free.
Two Stocks to Watch:
Bill.com (BILL)
Trailing 12-Month Free Cash Flow Margin: 20.9%
Started by René Lacerte in 2006 after selling his previous payroll and accounting software company PayCycle to Intuit, Bill.com (NYSE:BILL) is a software as a service platform that aims to make payments and billing processes easier for small and medium-sized businesses.
Why Could BILL Be a Winner?
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Winning new contracts that can potentially increase in value as its billings growth has averaged 17.6% over the last year
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Prominent and differentiated software culminates in a best-in-class gross margin of 85.1%
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Operating margin improvement of 12.7 percentage points over the last year demonstrates its ability to scale efficiently
Bill.com’s stock price of $46.99 implies a valuation ratio of 3.1x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free.
Tractor Supply (TSCO)
Trailing 12-Month Free Cash Flow Margin: 4.1%
Started as a mail-order tractor parts business, Tractor Supply (NASDAQ:TSCO) is a retailer of general goods such as agricultural supplies, hardware, and pet food for the rural consumer.
Why Are We Positive On TSCO?
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Aggressive expansion of new stores reflects an offensive push to quickly grow and sell in markets where it has few or no locations
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Forecasted revenue growth of 5.6% for the next 12 months indicates its momentum over the last six years is sustainable
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Industry-leading 35.2% return on capital demonstrates management’s skill in finding high-return investments