1 Cash-Producing Stock on Our Watchlist and 2 We Ignore

Generating cash is essential for any business, but not all cash-rich companies are great investments. Some produce plenty of cash but fail to allocate it effectively, leading to missed opportunities.

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 leverages its financial strength to beat its competitors and two that may face some trouble.

Two Stocks to Sell:

National Vision (EYE)

Trailing 12-Month Free Cash Flow Margin: 4.3%

Operating under multiple brands, National Vision (NYSE:EYE) sells optical products such as eyeglasses and provides optical services such as eye exams.

Why Are We Out on EYE?

1. Sales tumbled by 1.6% annually over the last three years, showing consumer trends are working against its favor
2. Recent store closures reflect a shift toward streamlining existing locations to maximize efficiency
3. Underwhelming 3.1% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up

National Vision’s stock price of $26.37 implies a valuation ratio of 29.4x forward P/E. To fully understand why you should be careful with EYE, check out our full research report (it’s free).

Mattel (MAT)

Trailing 12-Month Free Cash Flow Margin: 9.3%

Known for the creation of iconic toys such as Barbie and Hotwheels, Mattel (NASDAQ:MAT) is a global children's entertainment company specializing in the design and production of consumer products.

Why Should You Sell MAT?

1. Sales trends were unexciting over the last five years as its 3.3% annual growth was below the typical consumer discretionary company
2. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

At $20.88 per share, Mattel trades at 12.2x forward P/E. If you’re considering MAT for your portfolio, see our FREE research report to learn more.

One Stock to Watch:

Zoetis (ZTS)

Trailing 12-Month Free Cash Flow Margin: 23.8%

Originally spun off from Pfizer in 2013 as the world's largest pure-play animal health company, Zoetis (NYSE:ZTS) discovers, develops, and sells medicines, vaccines, diagnostic products, and services for pets and livestock animals worldwide.

Why Do We Like ZTS?

1. Performance over the past five years was boosted by share buybacks, which enabled its earnings per share to grow faster than its revenue
2. ZTS is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
3. Industry-leading 29.2% return on capital demonstrates management’s skill in finding high-return investments

Zoetis is trading at $123.65 per share, or 18.3x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

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