XLMedia PLC (LON:XLM) 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, XLMedia is currently valued at UK£161m. I’ve analysed below, the health and outlook of XLMedia’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.
See our latest analysis for XLMedia
What is free cash flow?
XLMedia generates cash through its day-to-day business, which needs to be reinvested into the company in order for it to continue operating. What remains after this expenditure, is known as its free cash flow, or FCF, for short.
There are two methods I will use to evaluate the quality of XLMedia’s FCF: firstly, I will measure its FCF yield relative to the market index yield; secondly, I will examine whether its operating cash flow will continue to grow into the future, which will give us a sense of sustainability.
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
The business reinvests all its cash profits as well as borrows more money, to maintain and grow the company. This leads to a negative FCF, as well as negative FCF yield, in which case is not a very useful measure.
Is XLMedia’s yield sustainable?
Can XLMedia improve its operating cash production in the future? Let’s take a quick look at the cash flow trend XLMedia is expected to deliver over time. Over the next two years, a double-digit growth in operating cash of 50% is expected. The future seems buoyant if XLMedia can maintain its levels of capital expenditure as well. Below is a table of XLMedia’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) | US$31m | US$43m | US$46m |
| OCF Growth Year-On-Year | 40% | 7.2% | |
| OCF Growth From Current Year | 50% |
Next Steps:
Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. You should continue to research XLMedia to get a more holistic view of the company by looking at:
- Valuation: What is XLM 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 XLM 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 XLMedia’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 editorial-team@simplywallst.com.