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
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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.