The saying "cash is king" has made its way into our collective consciousness for a reason. Though businesses can survive, or even thrive, without accounting profits -- Amazon.com did for much of its 20 years as a public company, for example -- conditions can deteriorate quickly if the cash stops coming in the door at most businesses.
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At the end of the day, companies that generate and grow their cash flows are typically doing something right. Here's a quick snapshot of three such names, whose cash flow generation -- as approximated by EBITDA -- is set to grow more than 50% this year.
EBITDA stands for earnings before interest, taxes, depreciation, & amortization. Ops = operations. LTM = last 12 months. Data Source: S&P Global Market Intelligence
Clearly, something's going right at Facebook(NASDAQ: FB), Molson Coors Brewing(NYSE: TAP),and Palo Alto Networks(NYSE: PANW).Let's dig further into each cash cow listed here to get a more concrete sense of its overall investment outlook.
Even as it grows, Facebook continues to prove itself immune to the law of large numbers. Just take the company's early February earnings report as the latest example. The company increased annual sales 54% to a whopping $26.8 billion. Better still, the operating leverage in its ad-based business model allowed the company's GAAP operating margin to rise from 37% in Q1 2016to an improbably impressive 52% in Q4 2016.
Image source: Facebook.
With this kind of momentum -- and arguable tailwinds coming as it monetizes its non-core messaging and virtual reality assets -- you'd be a (lowercase-f) fool to bet against the company's continued operational excellence and growth in the year to come. Facebook remains one of the most successful companies of our time, and 2017 should bring more success for the world's largest social network.
Molson Coors Brewing Company
Unlike social media advertising, the global beer market is a fairly slow-growing space. So how is it that megabrewer Molson Coors Brewing is set to nearly double its EBITDA this year?
The explanation is actually fairly brief: MillerCoors. In order to gain regulatory approval for its $109 billion SAB Miller acquisition last year, beer kingpin Anheuser-Busch InBev agreed to divest some brewing assets. It sold the remaining portion of MillerCoors that Molson Coors did not already own to it for $12 billion, a deal that closed last October. The resulting integration will make the new Molson Coors the third-largest beer brewer in the world by enterprise value, and it will dramatically increase the company's financial footprint. The brewery industry, particularly outside of craft beer, is driven by economies of scale. So, while the coming uptick in cash flow at Molson Coors will not be driven by organic demand, it should leave the company on stronger strategic footing.
Palo Alto Networks
Hacking and technological malfeasance are the unfortunate byproducts of our digital age. For those looking to profit from the ongoing boom in cybersecurity spending, IT security software dynamo Palo Alto Networks takes a unique approach to network protection that leaves both its customers and its shareholders happy. Here's a quick snapshot of the data security upstart's impressive growth over the past several years.
The thing to remember when looking at Palo Alto Networks' stock is that the company remains in the early innings of tapping into its growth opportunity; its CTO once said it is pursuing a $10 billion addressable market. More bullish analysts regularly claim cybersecurity will be a $1 trillion market eventually. Either way, Palo Alto's current $1.4 billion revenue run rateimplies the company enjoys plenty of room to grow.
As with many young companies, Palo Alto Networks' financial gains haven't been perfectly smooth. However, it's also important to remember that the company has made impressive progress in realizing its long-term vision. The company continues to win customers at a torrent pace; it has added more than 1,000 customers for 20 consecutive quarters. The future seems generally bright for Palo Alto Networks, which its expected 58% increase in EBITDA in the coming year only reiterates.
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