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 excels at turning cash into shareholder value and two that may face some trouble.
Two Stocks to Sell:
International Paper (IP)
Trailing 12-Month Free Cash Flow Margin: 2%
Established in 1898, International Paper (NYSE: IP) produces containerboard, pulp, paper, and materials used in packaging and printing applications.
Why Is IP Risky?
- Annual sales growth of 2.5% over the last five years lagged behind its industrials peers as its large revenue base made it difficult to generate incremental demand
- Earnings per share fell by 16% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $32.00 per share, International Paper trades at 14.1x forward P/E. Read our free research report to see why you should think twice about including IP in your portfolio.
ExxonMobil (XOM)
Trailing 12-Month Free Cash Flow Margin: 8.3%
One of the successor companies to John D. Rockefeller's Standard Oil monopoly that was broken up in 1911, ExxonMobil (NYSE: XOM) explores for and produces crude oil and natural gas, refines and sells petroleum products, and manufactures petrochemicals.
Why Do We Think Twice About XOM?
- High extraction costs and unfavorable asset economics are reflected in its low gross margin of 43.9%
- Costs have risen faster than its revenue over the last five years, causing its EBITDA margin to decline by 1.3 percentage points
ExxonMobil is trading at $164.20 per share, or 12.6x forward P/E. Check out our free in-depth research report to learn more about why XOM doesn’t pass our bar.
One Stock to Buy:
Oscar Health (OSCR)
Trailing 12-Month Free Cash Flow Margin: 28.6%
Founded in 2012 to simplify the notoriously complex American healthcare system, Oscar Health (NYSE: OSCR) is a technology-focused health insurance company that offers individual and small group health plans through its cloud-native platform.
Why Is OSCR a Top Pick?
- Annual revenue growth of 45.5% over the past two years was outstanding, reflecting market share gains this cycle
- Earnings per share grew by 37.4% annually over the last five years, massively outpacing its peers
- Free cash flow margin expanded by 23.8 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
Oscar Health’s stock price of $30.95 implies a valuation ratio of 17.1x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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