Investing in stocks based on top-line growth and increasing profit numbers might be a popular choice. But choosing stocks based on a company's efficiency in generating cash flows can be far more rewarding.
This is because even a profit-making company can have a dearth of cash flow and become bankrupt while meeting its obligations if its profits are not channelized in the right direction. But a company can effectively weather any market mayhem if it has a solid cash position as that lends a company the flexibility to make decisions, the means to invest and the fuel to run its growth engine. It is indeed the key to a company's existence, development and success, and reveals a company's true financial health.
To find this efficiency, one needs to consider its net cash flow figure. While in any business cash moves in and out, it is net cash flow that explains how much money the company is actually generating.
If a company is experiencing a positive cash flow then it denotes an increase in its liquid assets, which gives it 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, having a positive cash flow merely does not secure a company's future growth. To ride on the growth curve, a company must have its cash flow increasing because that indicates management's efficiency in regulating its cash movements and less dependency on outside financing for running its business.
Therefore, keep yourself abreast with the following screen to bet on stocks with rising cash flows. Screening Parameters:
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 seven stocks that qualified the screening:
Based in Winchester, VA, American Woodmark Corporation AMWD
is a manufacturer and distributor of kitchen cabinets and bath and home organization products. The company has a VGM Score of A.
American Woodmark has expected earnings growth of 44.1% for the current fiscal year. The Zacks Consensus Estimate for fiscal year 2019 earnings has improved by 25.6% in a month's time. Turtle Beach Corp. HEAR
is a San Diego, CA-based audio technology company that designs audio products for consumer, commercial and healthcare markets. The company has a VGM Score of A. Moreover, the Zacks Consensus Estimate for 2018 earnings increased to 97 cents per share from 37 cents in the past 60 days. QuinStreet, Inc. QNST
, based in Foster City, CA, is a provider of online direct marketing and media services. The company has a VGM Score of B.
QuinStreet has a projected long-term EPS growth rate of 25%. The stock has experienced positive estimate revisions, with the Zacks Consensus Estimate for fiscal 2018 earnings increasing 25% in two months' time. Delta Apparel, Inc. DLA
, headquartered in Greenville, SC, is an international design, marketing, manufacturing and sourcing company having a portfolio of basic and branded apparel, headwear and related accessories. The company has a VGM Score of B.
Delta Apparel has a projected long-term EPS growth rate of 15%. The stock has experienced positive estimate revisions, with the Zacks Consensus Estimate for fiscal 2018 earnings moving 11.1% north in two months' time.
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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.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report QuinStreet, Inc. (QNST): Free Stock Analysis Report Turtle Beach Corporation (HEAR): Free Stock Analysis Report American Woodmark Corporation (AMWD): Free Stock Analysis Report Delta Apparel, Inc. (DLA): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research