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 leverage their financial strength to beat the competition and one that may face some trouble.
One Stock to Sell:
Antero Resources (AR)
Trailing 12-Month Free Cash Flow Margin: 15.2%
Holding roughly 521,000 net acres across West Virginia, Ohio, and Pennsylvania, Antero Resources (NYSE: AR) drills and produces natural gas, natural gas liquids, and oil from underground rock formations in the Appalachian Basin.
Why Is AR Not Exciting?
- 5.4% annual revenue growth over the last five years was slower than its energy upstream and integrated energy peers
- Day-to-day expenses have swelled relative to revenue over the last five years as its EBITDA margin fell by 1.9 percentage points
Antero Resources is trading at $37.84 per share, or 8.7x forward P/E. Check out our free in-depth research report to learn more about why AR doesn’t pass our bar.
Two Stocks to Watch:
Electronic Arts (EA)
Trailing 12-Month Free Cash Flow Margin: 28.9%
Best known for its Madden NFL and FIFA sports franchises, Electronic Arts (NASDAQ: EA) is one of the world’s largest video game publishers.
Why Is EA Interesting?
- Brand halo makes it a customer acquisition machine that onboards new users at scale without spending much money
- Excellent EBITDA margin of 35.3% highlights the efficiency of its business model
- Robust free cash flow margin of 27.6% gives it many options for capital deployment, and its improved cash conversion implies it’s becoming a less capital-intensive business
At $202.43 per share, Electronic Arts trades at 16.6x forward EV/EBITDA. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
Intuitive Surgical (ISRG)
Trailing 12-Month Free Cash Flow Margin: 24.7%
Pioneering minimally invasive surgery since its first da Vinci system was FDA-cleared in 2000, Intuitive Surgical (NASDAQ: ISRG) develops and manufactures robotic-assisted surgical systems that enable minimally invasive procedures across various medical specialties.
Why Do We Watch ISRG?
- Annual revenue growth of 18.9% over the last two years was superb and indicates its market share increased during this cycle
- Forecasted revenue growth of 14.1% for the next 12 months indicates its momentum over the last two years is sustainable
- Earnings growth has trumped its peers over the last five years as its EPS has compounded at 21.4% annually
Intuitive Surgical’s stock price of $452.55 implies a valuation ratio of 45.5x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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