Could H&R Block Stock’s Cash Flow Spark the Next Rally?

We think H&R Block (HRB) 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 HRB

HRB stock is available at a significant discount to its 3-month, 1-year, and 2-year highs. This can be attributed to increased competitive pressures from free digital filing options and the IRS Direct File program, alongside higher operating expenses from field wages and consulting costs. Investor concerns also arose from a projected higher effective tax rate for fiscal 2026.

The stock may not reflect it yet, but here is what’s going well for the company. Recent Q2 fiscal 2026 results showed an 11.1% revenue increase, driven by higher assisted tax volume, increased net average charges, and robust growth in Wave subscriptions and DIY software sales. The company is expanding small business solutions and its Spruce mobile banking app, enhancing client tools with AI, and maintaining strong capital allocation through share repurchases. Full-year revenue outlook was reaffirmed, indicating sustained operational momentum.

HRB Has Strong Fundamentals

• Cash Yield: H&R Block offers an impressive cash flow yield of 13.1%.
• Growing: Revenue growth of 4.7% over the last twelve months is not that great, but your cash pile is likely to grow.
• Valuation Discount: HRB stock is currently trading at 30% below its 3-month high, 49% below its 1-year high, and 51% below its 2-year high.

Below is a quick comparison of HRB fundamentals with S&P medians.

*LTM: Last Twelve Months

But What About The Risk Involved?

While HRB stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. HRB took some serious hits in past crises. It dipped 51% in the Dot-Com bubble and dropped 46% during the Global Financial Crisis. The stock fell over 51% again in the Covid pandemic and about 39% in the Inflation Shock. Even the smaller 2018 correction wiped out around 26%. So, even with solid fundamentals, HRB isn’t immune when markets turn south. But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, and outlook changes. Read HRB Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

If you want to see more details, read Buy or Sell HRB Stock.

Other Stocks Like HRB

Not ready to act on HRB? You could consider these alternatives:

1. Oracle (ORCL)
2. AppLovin (APP)
3. ServiceNow (NOW)

We chose these stocks using the following criteria:

1. Greater than $2 Bil in market cap
2. Positive revenue growth
3. High free cash flow yield
4. 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

Portfolios Beat Stock Picking

Individual stocks are unpredictable. A smart portfolio helps you invest, limits downside shocks, and provides upside exposure.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? HQ Portfolio has posted more than 105% in cumulative return since inception, with less risk versus the benchmark index, as evident in HQ Portfolio performance metrics.