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.

Not all companies are created equal, and StockStory is here to surface the ones with real upside. That said, here is one cash-producing company that leverages its financial strength to beat its competitors and two that may face some trouble.

Two Stocks to Sell:

Paychex (PAYX)

Trailing 12-Month Free Cash Flow Margin: 33.9%

Once known as the go-to service for small business payroll needs, Paychex (NASDAQ:PAYX) provides payroll processing, HR services, employee benefits administration, and insurance solutions to small and medium-sized businesses.

Why Does PAYX Give Us Pause?

1. Annual revenue growth of 8.7% over the last five years was well below our standards for the software sector
2. Projected sales growth of 10.6% for the next 12 months suggests sluggish demand
3. Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 4.2 percentage points

Paychex’s stock price of $103 implies a valuation ratio of 5.7x forward price-to-sales. To fully understand why you should be careful with PAYX, check out our full research report (it’s free).

MillerKnoll (MLKN)

Trailing 12-Month Free Cash Flow Margin: 3.8%

Created through the 2021 merger of industry icons Herman Miller and Knoll, MillerKnoll (NASDAQ:MLKN) designs, manufactures, and distributes interior furnishings for offices, healthcare facilities, educational settings, and homes worldwide.

Why Does MLKN Fall Short?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
2. Earnings per share fell by 8.4% annually over the last five years while its revenue grew, partly because it diluted shareholders
3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

MillerKnoll is trading at $19.17 per share, or 9.4x forward P/E. Read our free research report to see why you should think twice about including MLKN in your portfolio.

One Stock to Watch:

Dynatrace (DT)

Trailing 12-Month Free Cash Flow Margin: 25.5%

With its platform processing over 30 trillion pieces of IT performance data daily, Dynatrace (NYSE:DT) provides an AI-powered platform that helps organizations monitor, secure, and optimize their applications and IT infrastructure across cloud environments.

Why Are We Positive On DT?

1. Annual revenue growth of 19.5% over the past two years was outstanding, reflecting market share gains
2. Superior software functionality and low servicing costs lead to a top-tier gross margin of 81.8%
3. Robust free cash flow margin of 25.5% gives it many options for capital deployment

At $40.89 per share, Dynatrace trades at 5.8x forward price-to-sales. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.

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