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 recent moderation in net client growth and increased operational investments. Analyst downgrades and cautious client spending also influenced valuation.
The stock may not reflect it yet, but here is what’s going well for the company: FactSet sustains high client retention and expands analytics, with new AI integration driving recurring revenue. Strong cash flow and a low debt-to-equity ratio bolster its financial position. Guidance projects are accelerating subscription sales momentum.
FDS Has Strong Fundamentals
- Cash Yield: FactSet Research Systems offers an impressive cash flow yield of 9.1%.
- 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 36% below its 3-month high, 59% below its 1-year high, and 61% 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 | 9.1% | 4.1% |
| Revenue Growth LTM | 5.9% | 6.5% |
| Operating Margin LTM | 31.7% | 18.8% |
| PS Ratio | 3.0 | 3.4 |
| PE Ratio | 11.9 | 24.8 |
| Discount vs 3-Month High | -36.0% | -4.4% |
| Discount vs 1-Year High | -59.5% | -8.3% |
| Discount vs 2-Year High | -61.1% | -10.7% |
*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 Bil 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
Stock Picking Falls Short For Managing Client Wealth
Managing large client accounts requires more than just picking winners. A robust asset allocation framework helps you scale your practice and deliver consistent risk-adjusted returns.
Client trust is built on consistency. By partnering with our Boston-based wealth management team, advisors gain access to rigorous risk management strategies that look beyond equities. Their approach combines multi-asset diversification with high-conviction equity baskets, such as the Trefis High Quality Portfolio which has returned > 105% since inception, to smooth out volatility and improve client outcomes.