1 Cash-Producing Stock to Research Further and 2 We Question

While strong cash flow is a key indicator of stability, it doesn’t always translate to superior returns. Some cash-heavy businesses struggle with inefficient spending, slowing demand, or weak competitive positioning.

Luckily for you, we built StockStory to help you separate the good from the bad. That said, here is one cash-producing company that reinvests wisely to drive long-term success and two that may struggle to keep up.

Two Stocks to Sell:

Royal Caribbean (RCL)

Trailing 12-Month Free Cash Flow Margin: 11.7%

Established in 1968, Royal Caribbean Cruises (NYSE:RCL) is a global cruise vacation company renowned for its innovative and exciting cruise experiences.

Why Should You Dump RCL?

1. Number of passenger cruise days has disappointed over the past two years, indicating weak demand for its offerings
2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 5% for the last two years
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

Royal Caribbean’s stock price of $294.53 implies a valuation ratio of 16.6x forward P/E. Read our free research report to see why you should think twice about including RCL in your portfolio.

Brunswick (BC)

Trailing 12-Month Free Cash Flow Margin: 11.4%

Formerly known as Brunswick-Balke-Collender Company, Brunswick (NYSE: BC) is a designer and manufacturer of recreational marine products, including boats, engines, and marine parts.

Why Should You Sell BC?

1. Lackluster 4.8% annual revenue growth over the last five years indicates the company is losing ground to competitors
2. Free cash flow margin is forecasted to shrink by 6.3 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

Brunswick is trading at $75.79 per share, or 18.9x forward P/E. Check out our free in-depth research report to learn more about why BC doesn’t pass our bar.

One Stock to Watch:

Trupanion (TRUP)

Trailing 12-Month Free Cash Flow Margin: 5.1%

Born from a vision to help pet owners avoid economic euthanasia when faced with expensive veterinary bills, Trupanion (NASDAQ:TRUP) provides medical insurance for cats and dogs through data-driven, vertically-integrated products priced specifically for each pet's unique characteristics.

Why Is TRUP Interesting?

1. Impressive 24.7% annual revenue growth over the last five years indicates it’s winning market share this cycle
2. Incremental sales over the last two years have been highly profitable as its earnings per share increased by 51.1% annually, topping its revenue gains
3. Balance sheet strength has increased this cycle as its 16% annual book value per share growth over the last five years was exceptional

At $37.97 per share, Trupanion trades at 4.3x forward P/B. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.

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