Look Beyond Earnings, Bet on 4 Stocks With Rising Cash Flows

Investors can be lured by profits and earnings surprises in the ongoing reporting cycle. However, during this earnings season and beyond, betting on stocks with a healthy cash level can be far more rewarding because cash is the lifeblood of a company’s existence, a measure of resiliency and a revelation of its true financial health.

In this regard, stocks like Atour Lifestyle Holdings Limited ATAT, Limbach Holdings, Inc. LMB, LSI Industries Inc. LYTS and Euroseas Ltd. ESEA are worth buying.

Even after reaping profits, a company can face a dearth of cash flow and be bankrupt while meeting its obligations if its profits are not channeled in the right direction. However, a company with adequate cash flows can effectively tide over any market mayhem besides enjoying flexibility in decision-making and chasing potential investments.

Analyzing a company’s cash-generating efficiency has indeed become more relevant amid uncertainties in the global economy, market disruptions and dislocations. Therefore, analyzing a company’s ability to produce cash is important not only for protecting your money but also for multiplying it.

To figure out this efficiency, one needs to consider a company’s net cash flow. While in any business, cash moves in and out, it is net cash flow that explains how much money a company is actually generating.

If a company is experiencing a positive cash flow, it denotes an increase in its liquid assets, which gives it the means to meet debt obligations, shell out for expenses, reinvest in the business, endure downturns and finally return wealth to shareholders. On the other hand, a negative cash flow indicates a decline in the company’s liquidity, which in turn lowers its flexibility to support these moves.

However, having a positive cash flow merely does not secure a company’s future growth. To ride on the growth curve, a company must have its cash flow increasing because that indicates management’s efficiency in regulating its cash movements and less dependency on outside financing for running its business.

Therefore, keep yourself abreast with the following screen to bet on stocks with rising cash flows.

Screening Parameters:

To find stocks that have seen increasing cash flow over time, we ran the screen for those whose cash flow in the latest reported quarter was at least equal to or greater than the 5-year average cash flow per common share. This implies a positive trend and increasing cash over a period of time.

In addition to this, we chose:

Zacks Rank 1: No matter whether market conditions are good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.

Average Broker Rating 1: This indicates that brokers are also highly hopeful about the company’s future performance.

Current Price greater than or equal to $5: This sieves out low-priced stocks.

VGM Score of B or better: This score is also of great assistance in selecting stocks. Importantly, this scoring system helps in picking winning stocks in their industry categories.

Here are four out of 13 stocks that qualified the screening:

Atour Lifestyle Holdings Limited is a prominent hospitality and lifestyle company in China known for its distinct portfolio of lifestyle hotel brands. As the leading upper midscale hotel chain in the country, Atour is also the first to establish a scenario-based retail business.

The consensus estimate for Atour Lifestyle’s current-year earnings has been revised 10.9% upward over the past two months. ATAT has a VGM Score of B.

Limbach Holdings provides building systems. The company engineers, constructs and services mechanical, plumbing, air conditioning, heating, building automation, electrical and control systems.

The Zacks Consensus Estimate for Limbach Holdings’s 2024 earnings has moved 2.5% north in the past two months to $2.43 per share. LMB has a VGM Score of B.

LSI Industries is an Image Solutions company that combines integrated design, manufacturing, & technology to supply its own high-quality lighting fixtures and graphics elements for applications in the retail, specialty niche and commercial markets.

The Zacks Consensus Estimate for LSI Industries’ fiscal 2025 earnings has moved up by 10% in the past two months. LYTS has a VGM Score of B.

Euroseas was formed under the laws of the Republic of the Marshall Islands to consolidate the ship-owning interests of the Pittas family of Athens, Greece, which has been in the shipping business for the last 136 years. It operates in the dry cargo, dry bulk and container shipping markets.

The Zacks Consensus Estimate for Euroseas’ current-year earnings has moved 13.2% north in the past month. ESEA currently has a VGM Score of A.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.

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Euroseas Ltd. (ESEA): Free Stock Analysis Report
 
LSI Industries Inc. (LYTS): Free Stock Analysis Report
 
Limbach Holdings, Inc. (LMB): Free Stock Analysis Report
 
Atour Lifestyle Holdings Limited Sponsored ADR (ATAT): Free Stock Analysis Report

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