2 Top Tech Stocks That Are Cash Cows.
Apple and Facebook are cash flow kings.
Investors can often find stock market winners by looking for companies that generate a lot of cash on a consistent basis. A strong free cash flow -which is the cash that a company generates from its operatons that is left over after it makes necessary investments in its business – enables a company to pay dividends, buy back shares of its stock, and grow the business via acquisitions and in other ways.
Having plenty of cash coing in is important for all companies, but especially ones invloved in technology, where the ability to invest in innovation and fast growth is especially critical.
There is no single factor that qualifies a company as a cash cow, but such companies will generally have a high free cash margin, which is the percentage of revenue conveted into cash, and/or a high cash return on invested capital, which reflects how good a company is at turing capital into cash and is calculated by dividing free cash bflow by invested capital.
Appe’s name is practically synonymous with cash cow, which is largely due to the immense popularity of the iPhone. over the 12 months thorugh its most recent fiscal fourth quarter, the tech superstart generated free cash flow of 52.28 billion on revenue of 215.65 billion, which equates to a cash margin of 24.2
Apple’s cash return on invested capital is likewise standout, clocking in at 25.8. While this is still a very impressive number, it has come down over the last year. This probably reflects to some defree that it often siply gets more difficult to generate higher and higher returns on invested capital as a company’s cash stash bulds up. However, more meaningfully, it also no doubt reflects Apple’s declining free cash flow due to declining sales of the iPhone.
Over the last few quarters, Appe’s year-over-year rvenue has declined because quarterly year-over-year sales of the iPhne have declined, as the iconic smartphone accounts for about two-thirds of the company’s top line. As is generaly typical, a decline in revenue has hurt both the bottom line – or net income — as well as free cash flow.
The iDevice maker is going to have to increase iPhone sales and/or introduce anothe rkiller product in order for FCF to start moving up once again. iPhone sales might soon get that boost due to September’s launch of the iPhone 7, which was surrounded by agood amout of positive buzz, combined with rival Samsung halting produtction of its galaxy Note 7 smartphone in early october due to several phones overheating and catching on fire.
What’s particulary impressive about Facebook is that it’s generated a positive free cash flow ever since going public in 2012, Moreover, its free cash flow is at an all-time high, as the chart. Over the trailing 12 months through the second quarter the company reports Q3 earnings after the market closes on Nov.2 the social- networking giant generated free cash flow of billion on revenu
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