In the quest for quality stocks with strong free cash flow (FCF) potential, we focus on companies with solid financial fundamentals, consistent earnings growth, and stable cash generation. Free cash flow is a key indicator of a company’s ability to fund operations, pay dividends, and pursue growth without relying on external financing. It serves as a measure of both quality and growth. With the CPMS engine, we can quickly evaluate a company’s financial strength and growth potential using a variety of tools available on the CPMS site.
To identify promising stocks, we applied a rigorous set of criteria using the CPMS engine. We prioritized companies with a CPMS score in the top 25th percentile, filtering out the bottom 75% based on five-year EPS growth stability and one-year EBITDA growth. Additional criteria included a market cap above $1 billion, a free cash flow yield over 1%, five-year annualized FCF growth above 5%, and a positive EV/EBITDA ratio below 15. Finally, we selected stocks that had gained more than 10% over the past nine months, ensuring positive recent momentum.
Based on these parameters, three stocks stood out for their strong free cash flow potential: Genpact (G), ResMed (RMD), and Corpay (CPAY). We will analyze them using various financial metrics and tools available on the CPMS site.
Genpact (G:NYSE)
Starting off with Genpact, we can see that it is strong in all six areas quantified by CPMS (Value, Growth, Quality, Momentum, Volatility, and Yield). Looking solely at quality, Genpact has a score of 79, indicating that Genpact is a company with good quality financials. Let’s explore Genpact’s financials to understand why that is the case.
Looking at Genpact’s quality scores, we can see that its average five-year return on capital is 12.8%, its return on capital stability is 2.4% over the past five years, and the company’s economic performance index, which measures return on capital relative to the cost of capital, is 1.7%. Looking at the comparative performance indicators (the two columns after the value, labeled “vs sector” and “vs market”), we can see how the company’s metrics compare against its sector and the overall market. As we can see, Genpact’s scores are stronger than its peers and the market.
ResMed (RMD:NYSE)
ResMed has high scores in Quality and Growth, with scores of 87 and 81, respectively. We can look further into ResMed’s Quality and Growth metrics by examining the Peers Map at the bottom of the Overview page in CPMS.
This Peers Map plots ResMed in comparison to its peers based on its Growth and Quality metrics. In the image above, ResMed has superior growth and quality metrics compared to eleven other companies in the same sector. The Peers Map tool is an efficient way to evaluate comparable companies based on their quality and growth metrics.
Corpay Inc. (CPAY:NYSE)
Corpay has strong scores in Quality with 74, Momentum with 69 and Growth with 68. One effective way to analyze Corpay’s quality, momentum, and growth metrics in relation to its historical performance is through the Factor Tilt diagram:
The dark color indicates the historic high and low scores, while the lighter shade represents the past year’s high and low. The length of each bar (spread) reflects the variation in the metric over time—longer bars indicate greater fluctuations.
Looking at the quality section (orange bars), we observe that the spreads are relatively small, suggesting consistent high quality over time. The quality score is based on three key metrics: the company’s average five-year return on capital, return on capital stability over the past five years, and Economic Performance Index. Since these spreads remain narrow, it indicates that Corpay has maintained strong and stable quality, reinforcing confidence in its quality score. This consistency makes Corpay an appealing option for investors seeking high-quality stocks.
Conclusion
Our analysis of Genpact (G), ResMed (RMD), and Corpay (CPAY) highlights how the CPMS engine can be a powerful tool for identifying high-quality stocks with strong free cash flow potential.
Genpact excels with a strong quality score, supported by strong return on capital and stability, as seen through the comparative performance indicators. ResMed stands out for its superior quality and growth scores, clearly outperforming its peers, which we confirmed using the Peers Map. Corpay’s consistent performance in quality highlighted by the Factor Tilt diagram, showing stable quality over time.
By leveraging these tools, CPMS makes it simple to evaluate stocks with strong free cash flow potential and reliable earnings growth, helping investors make informed decisions and uncover high-quality opportunities.
