Could FactSet Research Systems Stock’s Cash Flow Spark the Next Rally?
We think FactSet Research Systems (FDS) stock is worth a look: It is growing, producing cash, and available at a significant valuation discount. Companies like this can use cash to fuel additional revenue growth or simply pay their shareholders through dividends or buybacks. Either move makes them attractive to the market.
What Is Happening With FDS
FDS stock is available at a significant discount to its 3-month, 1-year, and 2-year highs. This can be attributed to cautious market sentiment, competitive pressures, and increased technology investments impacting near-term operating margins. Concerns over slowing revenue per user also contributed to market skepticism.
The stock may not reflect it yet, but FactSet’s Q1 FY26 organic Annual Subscription Value grew 5.9%, attracting over 9,000 clients and boosting wealth user growth 10%. New AI tools, including a text-to-formula agent and AI Doc Ingest, show momentum, with user adoption up 45% quarterly, streamlining workflows. Cash flow is solid, supported by a low 1.4x gross debt leverage and a $600 million share repurchase plan. Despite FY26 guidance projecting margin compression from investments, client retention remains 91%.
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FDS Has Strong Fundamentals
- Cash Yield: FactSet Research Systems offers an impressive cash flow yield of 8.3%.
- Growing: Revenue growth of 5.9% over the last twelve months means that the cash pile is going to grow.
- Valuation Discount: FDS stock is currently trading at 30% below its 3-month high, 56% below its 1-year high, and 58% below its 2-year high.
Below is a quick comparison of FDS fundamentals with S&P medians.
| FDS | S&P Median | |
|---|---|---|
| Sector | Financials | – |
| Industry | Financial Exchanges & Data | – |
| Free Cash Flow Yield | 8.3% | 4.0% |
| Revenue Growth LTM | 5.9% | 6.4% |
| Operating Margin LTM | 31.7% | 18.8% |
| PS Ratio | 3.3 | 3.4 |
| PE Ratio | 12.9 | 24.8 |
| Discount vs 3-Month High | -30.2% | -2.7% |
| Discount vs 1-Year High | -55.8% | -7.3% |
| Discount vs 2-Year High | -57.6% | -10.3% |
*LTM: Last Twelve Months
But What About The Risk Involved?
While FDS stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. FDS fell 59% in the Dot-Com bust and 54% during the Global Financial Crisis. The 2018 correction and inflation shock led to dips around 22% and 28%, respectively. Even the Covid sell-off wasn’t kind, with a drop of about 34%. Solid fundamentals matter, but these numbers show FDS can still take a big hit when markets get rocky.
If you want to see more details, read Buy or Sell FDS Stock.
Other Stocks Like FDS
Not ready to act on FDS? You could consider these alternatives:
We chose these stocks using the following criteria:
- Greater than $2 billion in market cap
- Positive revenue growth
- High free cash flow yield
- Meaningful discount to 3M, 1Y, and 2Y highs
A portfolio that was built starting 12/31/2016 with stocks that fulfill the criteria above would have performed as follows:
- Average 6-month and 12-month forward returns of 25.7% and 57.9%, respectively
- Win rate (percentage of picks returning positive) of >70% for both 6-month and 12-month periods
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