1 Cash-Producing Stock Worth Your Attention and 2 We Question

A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.

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 is one cash-producing company that reinvests wisely to drive long-term success and two best left off your watchlist.

Two Stocks to Sell:

Paramount (PARA)

Trailing 12-Month Free Cash Flow Margin: 1.8%

Owner of Spongebob Squarepants and formerly known as ViacomCBS, Paramount Global (NASDAQ:PARA) is a major media conglomerate offering television, film production, and digital content across various global platforms.

Why Do We Avoid PARA?

1. Products and services aren't resonating with the market as its revenue declined by 2% annually over the last two years
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 23.5% annually
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

At $11.04 per share, Paramount trades at 8.2x forward P/E. Dive into our free research report to see why there are better opportunities than PARA.

Illinois Tool Works (ITW)

Trailing 12-Month Free Cash Flow Margin: 17.3%

Founded by Byron Smith, an investor who held over 100 patents, Illinois Tool Works (NYSE:ITW) manufactures engineered components and specialized equipment for numerous industries.

Why Does ITW Fall Short?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Anticipated sales growth of 4% for the next year implies demand will be shaky
3. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 6.2% annually

Illinois Tool Works’s stock price of $262.49 implies a valuation ratio of 24.5x forward P/E. To fully understand why you should be careful with ITW, check out our full research report (it’s free).

One Stock to Watch:

Yelp (YELP)

Trailing 12-Month Free Cash Flow Margin: 19.6%

Founded by PayPal alumni Jeremy Stoppelman and Russel Simmons, Yelp (NYSE:YELP) is an online platform that helps people discover local businesses through crowd-sourced reviews.

Why Do We Like YELP?

1. Prominent and differentiated platform culminates in a best-in-class gross margin of 91.1%
2. Disciplined cost controls and effective management resulted in a strong two-year EBITDA margin of 26%, and its operating leverage amplified its profits over the last few years
3. Share buybacks catapulted its annual earnings per share growth to 28.4%, which outperformed its revenue gains over the last three years

Yelp is trading at $31.76 per share, or 5.7x forward EV/EBITDA. 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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