High Cash Flow Yield And Solid Fundamentals, You Might Want To Look At FI

Here is why we think Fiserv (FI) is worth a look

• Cash Yield: Not many stocks offer free cash flow yield of 6.7%, but FI does
• Fundamentals: 3-Year average revenue growth of 7.5% and operating margin of 26.7% show good fundamentals
• Valuation: At PE of 22.7, this combo of cash yield, revenue growth, and margin could get noticed
• Compared to S&P, you get lower valuation, higher revenue growth, and better margins

Free Cash Flow Yield refers to free cash flow per share / stock price. Why it matters? If a company produces high amount of cash per share, it can be used to fuel additional revenue growth, or simply paid through dividends or buybacks to shareholders. For quick background, Fiserv provides payment and financial technology services, including point-of-sale merchant acquiring, digital commerce, general ledger management, and debit, credit, and prepaid card processing.

But do these numbers tell the full story? Read Buy or Sell FI Stock to see if Fiserv still has an edge that holds up under the hood.

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 revenue growth

But Consider The Risk

That said, this stock isn’t immune to sharp drops. It fell about 38% in the Dot-Com bubble and over 51% during the Global Financial Crisis. The 2018 correction only clipped it by around 16%, but the Covid sell-off still took it down near 38%. Even the recent inflation shock pushed it down roughly 30%. Solid fundamentals matter, but when the market turns, downside can be steep regardless.

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read FI Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

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.