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華爾街日報2 Cash-Producing Stocks to Keep an Eye On and 1 We Avoid
Generating cash is essential for any business, but not all cash-rich companies are great investments. Some produce plenty of cash but fail to allocate it effectively, leading to missed opportunities.
Luckily for you, we built StockStory to help you separate the good from the bad. Keeping that in mind, here are two cash-producing companies that reinvest wisely to drive long-term success and one that may face some trouble.
One Stock to Sell:
OPENLANE (KAR)
Trailing 12-Month Free Cash Flow Margin: 12.9%
Facilitating the sale of approximately 1.3 million used vehicles in 2023, OPENLANE (NYSE:KAR) operates digital marketplaces that connect sellers and buyers of used vehicles across North America and Europe, facilitating wholesale transactions.
Why Are We Hesitant About KAR?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 4% annually over the last five years
- Underwhelming 2.5% return on capital reflects management’s difficulties in finding profitable growth opportunities
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
OPENLANE is trading at $28.65 per share, or 21.4x forward P/E. Read our free research report to see why you should think twice about including KAR in your portfolio.
Two Stocks to Watch:
Yum! Brands (YUM)
Trailing 12-Month Free Cash Flow Margin: 19.4%
Spun off as an independent company from PepsiCo, Yum! Brands (NYSE:YUM) is a multinational corporation that owns KFC, Pizza Hut, Taco Bell, and The Habit Burger Grill.
Why Are We Fans of YUM?
- Fast expansion of new restaurants indicates an aggressive approach to attacking untapped market opportunities
- Disciplined cost controls and effective management resulted in a strong two-year operating margin of 31.7%
- YUM is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Yum! Brands’s stock price of $153.84 implies a valuation ratio of 23.5x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free for active Edge members.
Reddit (RDDT)
Trailing 12-Month Free Cash Flow Margin: 26.8%
Founded in 2005 by two University of Virginia roommates, Reddit (NYSE:RDDT) facilitates user-generated content across niche communities (called subreddits) that discuss anything from stocks to dating and memes.
Why Are We Backing RDDT?
- Domestic Daily Active Visitors are rising, meaning the company can increase revenue without incurring additional customer acquisition costs if it can cross-sell additional products and features
- Earnings per share have massively outperformed its peers over the last three years, increasing by 40.3% annually
- Free cash flow margin expanded by 41.8 percentage points over the last few years, providing additional flexibility for investments and share buybacks/dividends
At $215.55 per share, Reddit trades at 39.4x forward EV/EBITDA. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
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