Sales growth tends to grab many investors' attention. But a quickly growing top line isn't as valuable as dependable cash flow that a company can direct toward improving the operations or use to protect the business during downturns.
With that in mind, let's take a look at a few stocks that are pairing impressive sales gains with market-leading cash flow production right now.
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Importing cash
Its 2012 push into the imported beer business has turned out well for Constellation Brands (STZ 2.40%). The alcoholic-beverage giant has seen its sales roughly triple since it purchased the U.S. rights to the Corona and Modelo beer franchises -- even as profitability has jumped by nearly 10 full percentage points, to 30% of sales.
Its cash production figures are even more impressive. Operating cash flow improved by 13% last year, to $1.9 billion, following a 21% spike in the prior year.
With help from strong demand across its premium beverage portfolio, executives are forecasting $2.5 billion of cash generation in fiscal 2019. And if history is any guide, Constellation Brands should make smart use of those funds. The company will aggressively invest into the business, continue adding brands to its portfolio, and likely still have cash left over to boost direct returns to shareholders through stock repurchases and a dividend payment that recently jumped 42%.
Faster profits
McDonald's (MCD 2.37%) operates less than 10% of its massive global restaurant base, choosing instead to allow franchisees to run those businesses while the fast-food giant collects rent, fees, and royalty payments. "This structure enables McDonald's to generate significant levels of cash flow," executives explain in their annual report. Last year, that cash haul totaled $5.6 billion, or a whopping 25% of annual revenue.
These strong finances give Mickey D's the flexibility to make the type of investments needed to protect its leadership position in the brutally competitive fast-food industry. After returning to market-thumping growth in 2017, the company is planning to boost its capital investments by over 20% -- to $2.5 billion -- this year. The cash will go toward upgrading and modernizing thousands of its stores and better equipping these restaurants to compete in the digital-sales channel. Most rivals couldn't even approach that level of spending, but for McDonald's, it's an outlay that's easily affordable.
Leveling up on gaming franchises
Video game titles have become much more valuable lately. Digital delivery has added new revenue streams like microtransactions, while extending the useful life of many games into a full year or longer. And Activision Blizzard (ATVI +0.00%) has been driving those trends and benefiting from them at the same time.
Image source: Getty Images.
The video game publisher's annual operating cash flow crossed $2.2 billion last year, up from $1.3 billion two years ago. The metric spiked by 30% at the start of fiscal 2018, too, thanks to its bigger portfolio of hits that's attracting record gamer engagement.
Besides the continuing trend toward digitally delivered games, Activision has a few other major avenues for growth ahead, including e-sports, consumer products, and advertising sales. These initiatives likely will help keep the company on top of its industry while supporting healthy returns for investors.
Activision executives describe their operating cash flow as one of the company's "fundamental" financial strengths. And just as is the case for McDonald's and Constellation Brands, the funds give management the flexibility to be aggressive in expansion times like these without exposing investors to risks like excessive debt that might threaten the company during those inevitable industry downturns.
