1 Cash-Producing Stock on Our Buy List 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. That said, here is one cash-producing company that excels at turning cash into shareholder value and two that may face some trouble.

Two Stocks to Sell:

Elastic (ESTC)

Trailing 12-Month Free Cash Flow Margin: 18.8%

Built on the powerful open-source Elasticsearch technology that powers search functionality for thousands of websites worldwide, Elastic (NYSE:ESTC) provides a search and AI platform that helps organizations find insights from their data, monitor applications, and protect against security threats.

Why Is ESTC Not Exciting?

1. Average billings growth of 13.9% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
2. Estimated sales growth of 13.7% for the next 12 months implies demand will slow from its two-year trend
3. Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient

Elastic’s stock price of $74.26 implies a valuation ratio of 4.2x forward price-to-sales. If you’re considering ESTC for your portfolio, see our FREE research report to learn more.

Petco (WOOF)

Trailing 12-Month Free Cash Flow Margin: 2.2%

Historically known for its window displays of pets for sale or adoption, Petco (NASDAQ:WOOF) is a specialty retailer of pet food and supplies as well as a provider of services such as wellness checks and grooming.

Why Do We Avoid WOOF?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
2. Earnings per share fell by 42% annually over the last three years while its revenue was flat, partly because it diluted shareholders
3. High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate

At $2.97 per share, Petco trades at 13.5x forward P/E. Check out our free in-depth research report to learn more about why WOOF doesn’t pass our bar.

One Stock to Buy:

CBIZ (CBZ)

Trailing 12-Month Free Cash Flow Margin: 3.2%

With over 120 offices across 33 states and a team of more than 6,700 professionals, CBIZ (NYSE:CBZ) provides accounting, tax, benefits, insurance brokerage, and advisory services to help small and mid-sized businesses manage their finances and operations.

Why Are We Backing CBZ?

1. Market share has increased this cycle as its 31% annual revenue growth over the last two years was exceptional
2. Projected revenue growth of 10% for the next 12 months suggests its momentum from the last two years will persist
3. Earnings per share grew by 28.3% annually over the last two years, massively outpacing its peers

CBIZ is trading at $53.66 per share, or 13x forward P/E. 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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