Interpump Group S.p.A. (BIT:IP): Exploring Free Cash Flows

Two important questions to ask before you buy Interpump Group S.p.A. (BIT:IP) is, how it makes money and how it spends its cash. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. I’ve analysed below, the health and outlook of Interpump Group’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.

Check out our latest analysis for Interpump Group

What is Interpump Group’s cash yield?

Interpump Group’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 Interpump Group to continue to grow, or at least, maintain its current operations.

I will be analysing Interpump Group’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

Interpump Group’s yield of 2.72% indicates its sub-standard capacity to generate cash, compared to the stock market index as a whole, accounting for the size differential. This means investors are taking on more concentrated risk on Interpump Group but are not being adequately rewarded for doing so.

BIT:IP Balance Sheet Net Worth, March 20th 2019
BIT:IP Balance Sheet Net Worth, March 20th 2019

What’s the cash flow outlook for Interpump Group?

Can Interpump Group 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, Interpump Group’s operating cash flows is expected to grow by a double-digit 42%, which is encouraging, should capital expenditure levels maintain at an appropriate level. Below is a table of Interpump Group’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) €149m €180m €212m €211m
OCF Growth Year-On-Year 21% 18% -0.8%
OCF Growth From Current Year 43% 42%

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 Interpump Group to get a better picture of the company by looking at:

  1. Valuation: What is IP 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 IP is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Interpump Group’s board and the CEO’s back ground.
  3. 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.