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. 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:
Novanta (NOVT)
Trailing 12-Month Free Cash Flow Margin: 12.3%
Originally a pioneer in the laser scanning industry during the late 1960s, Novanta (NASDAQ: NOVT) offers medicine and manufacturing technology to the medical, life sciences, and manufacturing industries.
Why Does NOVT Give Us Pause?
- 3.7% annual revenue growth over the last two years was slower than its industrials peers
- Flat earnings per share over the last two years lagged its peers
- Free cash flow margin dropped by 8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Novanta’s stock price of $116 implies a valuation ratio of 34x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including NOVT in your portfolio.
Two Stocks to Watch:
Aris Water (ARIS)
Trailing 12-Month Free Cash Flow Margin: 21.7%
Primarily serving the oil and gas industry, Aris Water (NYSE: ARIS) is a provider of water handling and recycling solutions.
Why Are We Backing ARIS?
- Impressive 23.8% annual revenue growth over the last five years indicates it’s winning market share this cycle
- Incremental sales over the last two years have been highly profitable as its earnings per share increased by 53.7% annually, topping its revenue gains
- Free cash flow margin jumped by 38.4 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
At $23.60 per share, Aris Water trades at 1.6x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
Coherent (COHR)
Trailing 12-Month Free Cash Flow Margin: 3.3%
Created through the 2022 rebranding of II-VI Incorporated, a company with roots dating back to 1971, Coherent (NYSE: COHR) develops and manufactures advanced materials, lasers, and optical components for applications ranging from telecommunications to industrial manufacturing.
Why Does COHR Stand Out?
- Market share has increased this cycle as its 19.5% annual revenue growth over the last five years was exceptional
- Economies of scale give it more fixed cost leverage than its smaller competitors
- Sales outlook for the upcoming 12 months calls for 8.7% growth, an acceleration from its two-year trend
Coherent is trading at $115.02 per share, or 25.1x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
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