3 Growth Stocks With Free Cash Flow

Growth Stocks With Free Cash Flow: Investing in companies that are rapidly growing their revenues is one of the most popular strategies for investment success. One critical flaw in it, however, is that a company can increase its revenues at a rapid pace without generating profit or free cash flow.

 

Finding stocks that grow rapidly and kick off free cash isn’t always easy, but such stocks can be quite promising when they do come up. Here are three growth stocks with promising free cash flows.

 

The Danaos Corporation (NYSE:DAC) is a container ship fleet company that offers its ships on a long-term contract basis to large shipping companies.

 

The company currently owns 69 container ships. Many of these ships have been built recently, juxtaposing Danaos’ fleet with some of the aging container ships widely found at sea today.

 

While container ship operation may not be the first thing that springs to mind when you think of growth stocks, Danaos has performed extremely well amid supply chain crunches and increased demand for shipping.

 

For the nine months ending on September 30th, Danaos reported a year-over-year increase of 56.1 percent from the same period in 2021.

 

Quarterly revenue for Q3 totaled $260 million.

Danaos is also in an excellent position with regard to cash. The company’s free cash flow ratio is an impressive 65.9 percent. Danaos is also sitting on a stockpile of cash and cash equivalents totaling $556.3 million.

 

Some of this cash has been allocated to share buybacks, with the company currently engaged in repurchasing $100 million worth of outstanding stock.

 

As a result of its growth and strongly positive cash flow, analysts expect Danaos stock to perform quite well over the coming year. The 12-month analysts consensus target for Danaos is $80, up 50.1 percent from the most recent price of $53.30. Even the lowest price target for the stock is $65, representing a single-year gain of 22 percent.

 

Danaos appears to be a decent stock to buy and hold for the long run. At the moment, the company is pursuing a refinancing agreement that would triple the number of unencumbered ships in its fleet. Analysts project slower growth over the next five years, but the company will likely continue to benefit from higher shipping service prices.

 

A final point in Danaos’ favor is its ability to generate income through dividends. Although the company has only paid a quarterly dividend for one year, the payouts so far have been surprisingly generous.

 

Danaos stock currently pays $3.00 per share annually and yields 5.6 percent. At just over 10 percent, the company’s dividend payout ratio is quite low and leaves a great deal of room for future dividend increases.

 

Oscar Health (NYSE:OSCR) is a health insurance and reinsurance company that has sold off by nearly 65 percent YTD. As a result, the stock may be an attractive choice for investors looking for high-growth options at bargain prices.

 

In Q3, Oscar Health reported total revenues of $978.4 million, compared to just $443.9 million in 2021. In addition to more than doubling its total revenues, Oscar increased its membership by 81 percent year-over-year and total premiums by 87 percent.

 

Despite its struggles so far this year, analysts expect Oscar Health stock to rise significantly in the next 12 months. Oscar’s stock forecast is $4, representing an increase of 44.9 percent against its current price of $2.76.

 

Price targets from the seven analysts covering the stock range from $3 to $7.

Oscar Health’s free cash flow is fairly strong at 38.7 percent. While the company is currently experiencing negative earnings, its cash position has improved substantially since last year.

 

In the most recent quarter, Oscar reported cash and equivalents of $2.135 billion. This was nearly double the 1.097 billion the company had in its coffers at the same time in 2021.

 

Oscar Health is a company that investors may want to consider buying and holding to take advantage of its long-term growth potential. Over the next five years, analysts predict that the company will grow at an annualized rate of 33.5 percent. Provided Oscar Health can meet this lofty target, it seems possible that the stock could multiply in the next few years.

 

Matson (NYSE:MATX) is an ocean transportation company primarily servicing Hawaii, Alaska and Guam. The company provides freight shipping, refrigerated shipping and inland transportation, among other services.

 

The company owns an integrated shipping network of container ships, barges, trucks, warehouses and other transportation infrastructure.

 

In Q3, Matson’s consolidated revenue totaled $1.114 billion, up from $1.071 billion in 2021. Ocean transportation revenue rose 6.4 percent, while logistics revenue increased 14.2 percent YTD over 2021. Earnings per share rose from $6.60 in Q3 2021 to $6.95 in 2022.

Matson’s share price target for the coming year is $79, up 32.1 percent over the current price of $59.81. It should be noted, however, that all analysts covering the stock have rated it as a hold rather than as a buy. This is likely due to a combination of slowing business in the Chinese market and Matson’s rising operating costs.

 

Matson has seen its free cash flow increase significantly over the past two years. In 2019 and 2020, the company generated $252.8 million and $660.7 million in FCF, respectively.

 

In the nine months ending on September 30th, Matson had already generated $1.816 billion in free cash flow in 2022.

 

The company’s FCF ratio stands at 51.6 percent. Given that Matson is expected to grow by about 15 percent annually over the next five years, investors will likely see these cash flow numbers continue to rise steadily.

 

Like Danaos, Matson also rewards investors with dividend payments. In Matson’s case, the stock yields 2.05 percent. Thanks to its single-digit payout ratio, though, the dividend appears extremely safe and could easily continue to grow in the coming years. Matson is currently on a 10-year streak of annual dividend increases.

 

Matson continues to invest in its fleet, with three new container ships having been contracted in the most recent quarter. These ships will be capable of acting as liquified natural gas transports, giving Matson enhanced energy transportation capabilities.

 

At the same time, the company is rewarding shareholders with an ongoing share repurchase program. In Q3 alone, Matson bought back about 1.1 million shares of its own stock. Between steady growth, excellent cash flows and ownership concentration through repurchases, Matson appears to have a good few years in its future.

#1 Stock For The Next 7 Days

When Financhill publishes its #1 stock, listen up. After all, the #1 stock is the cream of the crop, even when markets crash.

Financhill just revealed its top stock for investors right now... so there's no better time to claim your slice of the pie.

See The #1 Stock Now >>