1 Cash-Producing Stock for Long-Term Investors and 2 to Question
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. That said, here is one cash-producing company that reinvests wisely to drive long-term success and two that may face some trouble.
Two Stocks to Sell:
PagerDuty (PD)
Trailing 12-Month Free Cash Flow Margin: 23.2%
Started by three former Amazon engineers, PagerDuty (NYSE:PD) is a software-as-a-service platform that helps companies respond to IT incidents fast and make sure that any downtime is minimized.
Why Do We Think Twice About PD?
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Average billings growth of 7% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
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Estimated sales growth of 6.2% for the next 12 months implies demand will slow from its three-year trend
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Suboptimal cost structure is highlighted by its history of operating margin losses
PagerDuty is trading at $15 per share, or 2.7x forward price-to-sales. Read our free research report to see why you should think twice about including PD in your portfolio, it’s free.
ADT (ADT)
Trailing 12-Month Free Cash Flow Margin: 15.7%
Founded in 1874 and headquartered in Boca Raton, Florida, ADT (NYSE:ADT) is a provider of security, automation, and smart home solutions, offering comprehensive services for home and business protection.
Why Are We Hesitant About ADT?
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Demand for its offerings was relatively low as its number of customers has underwhelmed
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Anticipated sales growth of 4.3% for the next year implies demand will be shaky
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Below-average returns on capital indicate management struggled to find compelling investment opportunities
ADT’s stock price of $8.40 implies a valuation ratio of 9.8x forward P/E. Check out our free in-depth research report to learn more about why ADT doesn’t pass our bar.
One Stock to Buy:
Duolingo (DUOL)
Trailing 12-Month Free Cash Flow Margin: 35.6%
Founded by a Carnegie Mellon computer science professor and his Ph.D. student, Duolingo (NASDAQ:DUOL) is a mobile app helping people learn new languages.
Why Should You Buy DUOL?
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Has the opportunity to boost monetization through new features and premium offerings as its monthly active users have grown by 39.8% annually over the last two years
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Additional sales over the last three years increased its profitability as the 178% annual growth in its earnings per share outpaced its revenue
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Strong free cash flow margin of 34.4% enables it to reinvest or return capital consistently, and its growing cash flow gives it even more resources to deploy
At $400.10 per share, Duolingo trades at 64.5x forward EV/EBITDA. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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