Two important questions to ask before you buy Cogelec SA (EPA:COGEC) is, how it makes money and how it spends its cash. This difference directly flows down to how much the stock is worth. Operating in the industry, Cogelec is currently valued at €59m. I’ve analysed below, the health and outlook of Cogelec’s cash flow, which will help you understand the stock from a cash standpoint. Cash is an important concept to grasp as an investor, as it directly impacts the value of your shares and the future growth potential of your portfolio.
What is free cash flow?
Cogelec’s free cash flow (FCF) is the level of cash flow the business generates from its operational activities, after it reinvests in the company as capital expenditure. This type of expense is needed for Cogelec to continue to grow, or at least, maintain its current operations.
I will be analysing Cogelec’s FCF by looking at its FCF yield and its operating cash flow growth. The yield will tell us whether the stock is generating enough cash to compensate for the risk investors take on by holding a single stock, which I will compare to the market index. The growth will proxy for sustainability levels of this cash generation.
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
After accounting for capital expenses required to run the business, Cogelec is not able to generate positive FCF, leading to a negative FCF yield – not very useful for interpretation!
Is Cogelec’s yield sustainable?Cogelec’s FCF may be negative today, but is operating cash flows expected to improve in the future? Let’s examine the cash flow trend the company is anticipated to produce over time. Over the next two years, a double-digit growth in operating cash of 30% is expected. The future seems buoyant if Cogelec can maintain its levels of capital expenditure as well. Below is a table of Cogelec’s operating cash flow in the past year, as well as the anticipated level going forward.
|Current||+1 year||+2 year|
|Operating Cash Flow (OCF)||€4.2m||€3.6m||€5.4m|
|OCF Growth Year-On-Year||-12%||48%|
|OCF Growth From Current Year||30%|
Now you know to keep cash flows in mind, I suggest you continue to research Cogelec to get a better picture of the company by looking at:
- Valuation: What is COGEC 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 COGEC 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 Cogelec’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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.