Why "Free Cash Flow" is Important

I will start by saying that COG and QQQG are the exact same strategy, just with a different index. Pacer has a series of funds that all kind of follow this cash cow idea. They really break it down on their website why free cash flow matters and why they think it is an attribute of companies that will outperform, and they do an excellent job on their website of doing that.

But essentially what it says is that companies that have above average free cash flow, positive free cash flow, perform better over time, and they tend to have higher growth rates as a result because they can maintain and invest at times where companies without free cash flow cannot.

As a matter of fact, when people talk about value stocks, they talk a lot about using PE as their valuation metrics to decide what to invest in. If you're looking at growth stocks, you want to look at price to free cash flow. That is actually the valuation metric that you want to look at to determine the valuation comparability, discount, premium versus peers when you're looking at a growth stock.