Cash is most indispensable to any company. It gives a company the flexibility to make decisions, chase potential investments and run its growth engine.
Obviously, investors flock to companies that earn profits, but even a profitable business can succumb to failure if its cash flow is uneven and eventually file for bankruptcy. However, a company’s resilience can be effectively judged by evaluating its efficiency in generating cash flows, as cash not only guards a company from market mayhem but also indicates that profits are being channelized in the right direction. It is, in fact, the indicator of its true financial health.
To understand efficiency, one needs to consider a company’s net cash flow. In any business, cash moves in and out. It is net cash flow that explains how much money the company is actually making. Experiencing a positive cash flow denotes an increase in the company’s liquid assets. This provides the means to meet debt obligations, shell out for expenses, reinvest in business, endure downturns and finally return wealth to shareholders. On the other hand, a negative cash flow indicates a decline in the company’s liquidity, which in turn lowers its flexibility to support these moves.
However, positive cash flow alone is not sufficient to predict a company’s future growth. Consistent growth can only be achieved by a company when this positive cash flow is increasing because this improvement indicates management’s efficiency in regulating its cash movements and lesser dependency on external financing sources for running its business.
As a result, while picking stocks, go beyond profits and make sure to look for companies with dependable and increasing cash flows.
To find stocks that have seen increasing cash flow over time, we ran the screen for those whose cash flow in the latest reported quarter was at least equal to or greater than the 5-year average cash flow per common share. This implies a positive trend and increasing cash over a period of time.
In addition to this we chose:
Zacks Rank 1: No matter whether market conditions are good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.
Average Broker Rating 1: This indicates that brokers are also highly hopeful about the company’s future performance.
Current Price greater than or equal to $5: This sieves out low-priced stocks.
VGM Score of B or better: This score is also of great assistance in selecting stocks. Importantly, this scoring system helps in picking winning stocks in their individual industry categories.
Here are four out of eight stocks that qualified the screening:
SORL Auto Parts, Inc. SORL, headquartered in China, specializes in the development, production and distribution of automotive brake systems and other key safety related auto parts. The company's customer base consists of original equipment manufacturers, aftermarket distributors, and international customers. The company has a VGM Score of A.
The stock has experienced solid estimate revisions. In fact, the Zacks Consensus Estimate for full-year 2017 earnings has increased 25.4% in a month’s time.
Century Casinos, Inc. CNTY, based in based in Colorado Springs, CO, is an international casino entertainment company with operations worldwide. The company has a VGM Score of B.
In the trailing four quarters, the stock delivered an average beat of 49.86%. Moreover, the Zacks Consensus Estimate for 2017 earnings has climbed 2.7% in a month’s time.
POSCO PKX, formerly known as Pohang Iron and Steel Company, is a South Korean company. Its broad product line includes hot-rolled and cold-rolled products, plates, wire rods and stainless steel products. The company has a VGM Score of A.
POSCO has a long-term growth rate of 5%. Moreover, the stock has experienced solid estimate revisions, reflecting analysts’ bullishness. In fact, the Zacks Consensus Estimate for 2017 earnings has increased 8.4% over the past two months.
Columbus McKinnon Corporation CMCO, headquartered in Getzville, NY, is a broad-line designer, manufacturer and supplier of sophisticated material handling products, technologies and services. The company has a VGM Score of A.
Columbus McKinnon has experienced positive estimate revisions with the Zacks Consensus Estimate for fiscal year 2018 earnings moving 1% north in a month.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.
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Century Casinos, Inc. (CNTY) : Free Stock Analysis Report
SORL Auto Parts, Inc. (SORL) : Free Stock Analysis Report
Columbus McKinnon Corporation (CMCO) : Free Stock Analysis Report
POSCO (PKX) : Free Stock Analysis Report
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