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Comet Holding AG (VTX:COTN) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. This difference directly flows down to how much the stock is worth. Operating in the industry, Comet Holding is currently valued at CHF726m. I will take you through Comet Holding’s cash flow health and the risk-return concept based on the stock’s cash flow yield, using the most recent financial data. This will help you think about the company from a cash perspective, which is a crucial factor to investing.
View our latest analysis for Comet Holding
What is Comet Holding’s cash yield?
Free cash flow (FCF) is the amount of cash Comet Holding has left after it pays off its expenses, including its net capital expenditures, which is what the company needs to spend each year to maintain or grow its business operations.
The two ways to assess whether Comet Holding’s FCF is sufficient, is to compare the FCF yield to the market index yield, as well as determine whether the top-line operating cash flows will continue to grow.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
Along with a positive operating cash flow, Comet Holding also generates a positive free cash flow. However, the yield of 1.3% is not sufficient to compensate for the level of risk investors are taking on. This is because Comet Holding’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
Does Comet Holding have a favourable cash flow trend?
Can Comet Holding improve its operating cash production in the future? Let’s take a quick look at the cash flow trend the company is expected to deliver over time. In the next few years, Comet Holding’s operating cash flows is expected to grow by a double-digit 46%, which is encouraging, should capital expenditure levels maintain at an appropriate level. Below is a table of Comet Holding’s operating cash flow in the past year, as well as the anticipated level going forward.| Current | +1 year | +2 year | +3 year | |
|---|---|---|---|---|
| Operating Cash Flow (OCF) | CHF41m | CHF38m | CHF48m | CHF59m |
| OCF Growth Year-On-Year | -6.0% | 26% | 23% | |
| OCF Growth From Current Year | 18% | 46% |
Next Steps:
Although its positive operating cash flow, and high future growth, is appealing, the low free cash flow yield is unattractive. This is because you would be better compensated in terms of cash yield, by investing in the market index, as well as take on lower diversification risk. However, cash is only one aspect of investing. Now you know to keep cash flows in mind, You should continue to research Comet Holding to get a better picture of the company by looking at:
- Valuation: What is COTN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether COTN is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Comet Holding’s board and the CEO’s back ground.
- Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.