Free cash flow:
Free cash flow (FCF) is a measure of a company's financial performance, calculated as operating cash flow minus capital expenditures. FCF represents the cash that a company is able to generate after spending the money required to maintain or expand it's asset base. FCF is important because it allows a company to pursue opportunities that enhance shareholder value.
OK, enough with copy/paste. Let's go for some original content.
I've never used FCF that much. In fact, that element has always been obscure, or at least, not very important to me.
But, it's never too late to grow up. Because I've understood very recently that this element is much more important than what I thought. In fact, almost all the stocks that achieve growing FCF over time are great business. And it's not very hard to understand: If a business makes more and more money, year after year, whatever the expenses are, it's probably a good business.
So, I went to analyze some stocks via Morningstar to see how many business were able to grow their FCF in a steady way over the last 5 years. My criteria was very harsh: the stock had to grow it's FCF every year, without any exception. So, if a stock had a very good steady FCF growth but had only a slight decline only one year, it failed the test. Let's try it with your stocks. You'll see that it's VERY hard to find stocks that grow their FCF every year.
Here's a list of free cash flow champions: stocks for which the free cash flow have been constantly on the rise over the last 5 years. There's 5 foreign stocks (mostly US) and 5 canadian stocks.
Middleby (MIDD): UP 308%
Novo Nordisk (NVO): UP 38%
Priceline (PCLN): UP 170%
Discover financial Services (DFS): UP 77%
Facebook (FB): UP 293%
Constellation Software (CSU): UP 672%
Enghouse Systems (ENGH): UP 329%
Open Text (OTEX): UP 256%
Canadian National (CNR) UP 152%
CCL Industries (CCL-B) UP 702%
Benchmark (S&P500): UP 77%
I don't know if my approach is scientific, but over these 10 stocks, only one did worse than the S&P over a 5 years period. And it wasn't an ugly performance...
I think I like that FCF approach.