If You Like Cash Flow Machines Take A Look At SSNC
Here is why we think SS&C Technologies (SSNC) is worth a look
- Not many stocks offer free cash flow yield of 6.0%, but SSNC does
- Last 12 month revenue growth of 6.9% and operating margin of 23.0% show good fundamentals
- At PE of 24.9, this combo of cash yield, growth, and margin could get noticed
- Compared to S&P, while you get higher valuation, you further get higher LTM growth, and better margins
SS&C Technologies provides software and services for financial and healthcare industries, covering securities accounting, trading, portfolio management, and healthcare solutions across global markets.
| SSNC | S&P Median | |
|---|---|---|
| Sector | Information Technology | – |
| Industry | Application Software | – |
| Free Cash Flow Yield | 6.0% | 3.9% |
| Revenue Growth LTM | 6.9% | 5.0% |
| Revenue Growth 3YAVG | 5.3% | 5.9% |
| Operating Margin LTM | 23.0% | 18.8% |
| Operating Margin 3YAVG | 22.2% | 17.5% |
| PE Ratio | 24.9 | 23.8 |
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 growth
But Consider The Risk
That said, SSNC isn’t immune to sharp sell-offs. It fell about 36% during the 2018 correction, nearly 48% through the Covid pandemic, and around 44% in the recent inflation shock. Even with strong fundamentals, the stock has shown significant vulnerability when broader market turmoil hits. Bottom line: favorable factors matter, but steep dips can still happen.
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.