Screening to Find the Cash Flow Monsters

We’ve often noted that Jack Hough over at Barron’s is one of your favorite fellow investment writers, and what’s nice is that he often crystalizes a big idea into something quite simple and chartable: this week he compares EPS, the number Wall Street and the rest of the world seems to obsess about, with Free Cash Flow Per Share, and finds some potential bargains along the way.

As Hough ably explains, companies generating free cash flow per share higher than reported EPS may, in essence, be more profitable than the market thinks they are. He has a few good examples – International Paper (IP), Hanesbrands (HBI), Xerox (XRX) and L-3 Communications (LLL) – and with the YCharts Stock Screener you can easily analyze any group of stocks for the difference between these two metrics yourself. It’s a powerful equity research tool.

The screener linked above merely lists the S&P 500 with a column of Diluted EPS TTM vs. a column of Free Cash Flow Per Share TTM. You can peruse the list and, when you find a company with a favorable ratio that interests you, go to the company page (by typing the symbol or company name into the open box at the top of the screen) and chart the two metrics over a longer period of time. EPS, of course, is under “Popular Metrics.” You’ll find Free Cash Flow Per Share TTM under the “Shareholder Payouts, Liquidity and Solvency Ratios,” right below the boldfaced word “Solvency.”

IP EPS Diluted (TTM) Chart

IP EPS Diluted (TTM) data by YCharts

Apple (AAPL) pops up on the screener and we can see that, over time, it has high-quality earnings and an abundance of free cash flow.

AAPL EPS Diluted (TTM) Chart

AAPL EPS Diluted (TTM) data by YCharts

Companies with strong free cash flow, of course, are more likely to be lifting their dividends and making big stock buybacks. And less likely to run into financial trouble.

Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.



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