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.
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 leverage their financial strength to beat the competition and one that may face some trouble.
One Stock to Sell:
Perdoceo Education (PRDO)
Trailing 12-Month Free Cash Flow Margin: 23%
Formerly known as Career Education Corporation, Perdoceo Education (NASDAQ:PRDO) is an educational services company that specializes in postsecondary education.
Why Are We Cautious About PRDO?
- Sales trends were unexciting over the last two years as its 1.3% annual growth was below the typical consumer discretionary company
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Perdoceo Education’s stock price of $29.71 implies a valuation ratio of 12.3x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than PRDO.
Two Stocks to Buy:
Sea (SE)
Trailing 12-Month Free Cash Flow Margin: 19.6%
Founded in 2009 and a publicly traded company since 2017, Sea (NYSE:SE) started as a gaming platform and has since expanded to offer a variety of services such as e-commerce, digital payments, and financial services across Southeast Asia.
Why Do We Love SE?
- Paying Users have increased by an average of 10.2% annually, giving it the potential for margin-accretive growth if it can develop valuable complementary products and features
- Grip over its ecosystem is highlighted by its ability to grow engagement while increasing the average revenue per user by 16.6% annually
- Free cash flow margin increased by 27.2 percentage points over the last few years, giving the company more capital to invest or return to shareholders
Sea is trading at $167 per share, or 44.2x forward EV/EBITDA. Is now a good time to buy? See for yourself in our full research report, it’s free.
UnitedHealth (UNH)
Trailing 12-Month Free Cash Flow Margin: 6.1%
With over 100 million people served across its various businesses and a workforce of more than 400,000, UnitedHealth Group (NYSE:UNH) operates a health insurance business and Optum, a healthcare services division that provides everything from pharmacy benefits to primary care.
Why Will UNH Beat the Market?
- Dominant market position is represented by its $410.1 billion in revenue, which gives it negotiating power over membership pricing and reimbursement rates
- Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Market-beating returns on capital illustrate that management has a knack for investing in profitable ventures
At $287.96 per share, UnitedHealth trades at 9.4x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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