Investors mostly 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, one can effectively judge a company’s resilience by looking at its efficiency in generating cash flows. This is because cash not only shields it from market mayhem, but also indicates that profits are being channelized in the right direction.
In fact, if achieving profit is a company’s goal, then having healthy cash flow is highly essential for its existence, development and success. This is because cash gives a company more flexibility with respect to business decisions and potential investments, as well as the fuel to run its growth engine. In fact, cash indicates 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.
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:
Johnson Outdoors Inc. is a leading global outdoor recreation company that designs, manufactures and markets a portfolio of winning, consumer-preferred brands across four categories — Watercraft, Marine Electronics, Diving and Outdoor Equipment. The company, headquartered in Racine, WI, flaunts a VGM Score of A. The stock has witnessed positive estimate revisions, with the Zacks Consensus Estimate for fiscal 2018 earnings increasing 11.4%, over the last 60 days.
New Albany, OH-based Commercial Vehicle Group Inc. (CVGI - Free Report) supplies interior systems, vision-safety solutions and other cab-related products to the global commercial vehicle market. The stock has a VGM Score of B. The Zacks Consensus Estimate for 2018 earnings has moved 6.9% upward to $1.40, in 60 days’ time.
Verso Corp. (VRS - Free Report) , based in Miamisburg, OH, produces coated freesheet, coated ground wood, and uncoated super calendared papers and pulp. It serves to magazine and catalog publishers, commercial printers, specialty retail merchandisers and paper merchants. The stock sports a VGM Score of A. Moreover, the Zacks Consensus Estimate for current-year earnings has more than doubled to $2.01 from 98 cents in the last 60 days.
Irvine, CA-based Tilly's, Inc. (TLYS - Free Report) is a specialty retailer in the action sports industry selling clothing, shoes and accessories. It has a VGM Score of A. The stock has witnessed positive estimate revisions, with the Zacks Consensus Estimate for fiscal 2018 earnings moving 11.1% north, over the last 30 days.
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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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