Shareholder equity is among the most important metrics for investors to track. Shareholder equity is the value left to investors after all liabilities are covered and represents the business's intrinsic value. All else aside, companies with positive shareholder equity are in better condition than those without, and businesses growing equity are better than those that don’t. This article looks at five high-quality investments with positive and increasing shareholder value in 2024.
Cloudflare equity is up 22%; buy the dip
Cloudflare (NYSE: NET) is a leader in cloud-based internet security and services and is on track to hit new highs in 2024. The Q4 release resulted in a sharp share price correction, which is not a red flag but an opportunity for investors. The move lower realigns the market with analysts' sentiment and the consensus price target, which continues to rise.
Highlights from the report include a 32% top-line gain, wider gross and operating margin, record operating cash flow, a 150% increase in adjusted earnings, and a 50% increase in free cash flow. Free cash flow increased to 14% of the revenue, with margin strength forecasted for 2024. Cash flow was put to good use, helping to reduce long-term debt and build equity. The balance sheet shows current and total assets are up, liabilities are relatively flat, and shareholder equity is up 22%.
Simpson Manufacturing builds equity 18% in 2023
Simpson Manufacturing (NYSE: SSD) had a mixed quarter in Q4 relative to the analysts' estimates. The company beat on the top but missed estimates for the bottom line, raising doubts about future growth. However, as tepid as the results were, the stock is moving higher following the report due to growth, a forecast for accelerating growth, and guidance for margin improvement.
The company’s cash flow is also ample, allowing for balance sheet improvements while paying dividends and repurchasing shares. The dividend is worth about 0.55% annually, and repurchases were barely enough to offset share dilution, but both aid shareholder value. Regarding the balance sheet, cash is up, and debt is down, aiding an 18% increase in equity.
Chipotle Mexican Grill smokes the competition, equity up 16%
Chipotle Mexican Grill (NYSE: CMG) had a smoking Q4 and 2023 with industry-leading growth. The Q4 details include 15.5% top-line growth, which outpaced the Marketbeat.com consensus and was compounded by wider margins. The restaurant-level operating margin improved by 140 bps, and the company level by 80 bps, to drive a 25% increase in adjusted earnings.
Cash flow was used to build new stores and improve the balance sheet. The balance sheet shows cash is up, inventory is up, and current and total assets are up to offset a marginal liability increase. The net result is a 16% increase in shareholder equity aided by share repurchases. Share repurchases reduced the diluted share count by 1% in 2023 and are expected to continue in 2024.
Shopify achieves positive free cash flow; equity up 10%
Shopify (NYSE: SHOP) had a great year in 2023, with growth exceeding expectations, margins widening, and cash flow turning positive. Guidance is also favorable to shareholders, with top-line growth expected and margins to remain positive. Highlights from the balance sheet include a solid cash position, down compared to last year but offset by other current assets; current and total assets are up, and total liabilities are down, resulting in a 10% increase in shareholder equity. Because the company has turned the corner and is producing positive free cash flow, shareholder equity should continue to improve as the year progresses.
Dividend King PepsiCo increases equity 7.8%
PepsiCo (NASDAQ: PEP) had a tougher time than some in Q4, with weakness in snacking offset by strength in beverages. Takeaways from the report included a top-line miss offset by a better-than-expected margin that drove sufficient cash flow to pay dividends, repurchase shares, and improve the balance sheet. The bottom line details include adjusted earnings growth of 6.5% compared to the -0.5% top-line decline.
Details from the balance sheet include a growing cash position, up about 100% YOY, and an increase in assets that offsets an increase in liabilities. Cash flow also allows for a substantial dividend and share repurchases, which reduced the share count by 0.3% for the year. The company guidance calls for mid-single-digit top-line growth, margin improvement and at least $1 billion in share repurchases, aiding another year of equity gains for shareholders.
