QSR Generates Strong Cash So Why Are You Not Considering It?

Here is why we think Restaurant Brands International (QSR) is worth a look

• Not many stocks offer free cash flow yield of 5.7%, but QSR does
• Last 12 month revenue growth of 22.4% and operating margin of 26.4% show good fundamentals
• At PE of 22.7, this combo of cash yield, growth, and margin could get noticed
• Compared to S&P, you get lower valuation, higher growth, and better margins

That is one way to look at stocks. Trefis High Quality Portfolio evaluates much more, and is designed to reduce stock-specific risk while giving upside exposure

The Point? The Market Can Notice, And Reward

Here are some stocks that showed strong cash flow yield in mid 2024, and saw strong returns in the subsequent 12 months

• FFIV gained 70% in a year after showing a 6.9% free cash flow yield
• CSCO had 6.6% yield, and returned 50% in the next 12 months
• PM rose over 85% percent as the market noticed its 5.7% free cash flow yield and good underlying growth

But Consider The Risk

That said, QSR isn’t immune to sharp drops. It fell 22% during the 2018 correction, took a much heavier hit of 57% in the Covid pandemic, and dropped 31% during the inflation shock. Even with solid fundamentals, these swings show the stock can still face big sell-offs when market turmoil hits. No matter how strong a company looks, risk is always there.

Picking winners on a consistent basis is not an easy task – especially given the volatility associated with a single stock. Instead, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.