A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.
Luckily for you, we built StockStory to help you separate the good from the bad. Keeping that in mind, here are three cash-producing companies that don’t make the cut and some better opportunities instead.
Paylocity (PCTY)
Trailing 12-Month Free Cash Flow Margin: 20.5%
Operating in a field where companies traditionally juggled multiple disconnected systems, Paylocity (NASDAQ:PCTY) provides cloud-based human capital management and payroll software solutions that help businesses manage their workforce and HR processes.
Why Does PCTY Fall Short?
- Underwhelming ARR growth of 14.7% over the last year suggests the company faced challenges in acquiring and retaining long-term customers
- Estimated sales growth of 6.7% for the next 12 months implies demand will slow from its two-year trend
- Static operating margin over the last year shows it couldn’t become more efficient
At $145.14 per share, Paylocity trades at 4.5x forward price-to-sales. Read our free research report to see why you should think twice about including PCTY in your portfolio.
IQVIA (IQV)
Trailing 12-Month Free Cash Flow Margin: 13.9%
Created from the 2016 merger of Quintiles (a clinical research organization) and IMS Health (a healthcare data specialist), IQVIA (NYSE:IQV) provides clinical research services, data analytics, and technology solutions to help pharmaceutical companies develop and market medications more effectively.
Why Are We Cautious About IQV?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 3.5% for the last two years
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- 3.6 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
IQVIA’s stock price of $213.06 implies a valuation ratio of 16.9x forward P/E. Dive into our free research report to see why there are better opportunities than IQV.
Repligen (RGEN)
Trailing 12-Month Free Cash Flow Margin: 14.1%
With over 13 strategic acquisitions since 2012 to build its comprehensive bioprocessing portfolio, Repligen (NASDAQ:RGEN) develops and manufactures specialized technologies that improve the efficiency and flexibility of biological drug manufacturing processes.
Why Do We Steer Clear of RGEN?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 17.8 percentage points
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Repligen is trading at $145 per share, or 75.5x forward P/E. If you’re considering RGEN for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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