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

Here is why we think Gen Digital (GEN) is worth a look

• Cash Yield: Not many stocks offer free cash flow yield of 7.0%, but GEN does
• Fundamentals: 3-Year average revenue growth of 14.8% and operating margin of 36.6% show good fundamentals
• Valuation: While tad expensive at PE of 32.2, the combo of cash yield, growth, and margin could still get noticed
• Compared to S&P, while you get higher valuation, you further get 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, Gen Digital provides global cyber safety solutions, including device protection against malware and identity theft monitoring, alerts, and restoration services for consumers.

But do these numbers tell the full story? Read Buy or Sell GEN Stock to see if Gen Digital 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, GEN isn’t immune to big sell-offs. It fell 63% during the Dot-Com Bubble and 56% in the Global Financial Crisis. The 2018 correction and the inflation shock also hit hard, with drops around 48%. Even the Covid pandemic, which was less severe here, still pulled it down nearly 25%. Solid fundamentals matter, but when the market turns, GEN can take a serious hit.

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 GEN 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.