As most of us already know, "cash is the lifeblood of any
business". Without cash, survival is difficult - if not impossible.
Again, this may sound obvious, but it is a simple fact that
companies go out of business every day because of a lack of cash
flow. A company can go on for years in the red, as long as a
company has steady cash flow that is managed wisely. But once the
company runs out of funds and cannot pay the bills, it is often
Investing legends Warren Buffet, Peter Lynch and hedge-fund guru
Joel Greeenblatt all agree that free cash flow is the one financial
metric that they value the most.
I recently came across a company with a strong free cash flow that
I am particularly fond of right now. It is one that I am certain
Buffett, Lynch and Greenblatt would be proud to own.
AmSurg (Nasdaq: AMSG)
, a Nashville, TN based company, operates a network of over 200
ambulatory surgery centers that should benefit greatly from an
aging country. With a market capitalization of $820 million, the
small cap company has not had an annual EPS decline in over 10
years, despite several difficult economic environments.
But, for this article I am more concerned with the free cash flow
of the company and AmSurg stands among an elite group of small caps
with a free cash flow yield of 26.3 percent.
In fact, according to Morningstar, Amsurg, is one of the top five
healthcare companies as measured by the price to cash flow ratio.
In most cases, it is the companies that display the lowest ratios
that present the greatest value to investors.
But most important is Amsurg's ability to use its free cash flow
effectively. The company's ability to effectively use available
free cash flow to drive future returns is why I love this stock.
Amsurg's 22.1 percent earnings yield and staggering 107.1 percent
return on capital make it one of the more attractive stocks on my
watchlist right now.
But the proof is in the pudding. Look at how well $10,000 invested
in the stock has performed against the S&P 500 and the Medical
Care sector over the past five years. It handily outperformed both.
Like any performance metric, pure free cash flow based analysis has
its limitations. But it is a good metric to start with when looking
for a big winner in the small cap space. And based on its free cash
flow, AmSurg has the potential to continue to be one of the best