If you are currently a shareholder in Altice NV. (ENXTAM:ATC), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. This difference directly flows down to how much the stock is worth. Operating in the cable and satellite industry, Altice is currently valued at €9.38B. I will take you through Altice’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. See our latest analysis for Altice
Is Altice generating enough cash?Free cash flow (FCF) is the amount of cash Altice 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. There are two methods I will use to evaluate the quality of Altice’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
Altice’s yield of 3.34% 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 Altice but are not being adequately rewarded for doing so.
What’s the cash flow outlook for Altice?Another important consideration is whether this return is likely to be maintained over the next couple of years. We can gauge this by looking at Altice’s expected operating cash flows. Over the next three years, expected growth for Altice’s operating cash is negative. This is unfavourable to its future outlook, especially if capital expenditure heads the opposite direction. Below is a table of Altice’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)||€7.92B||€5.50B||€6.46B||€7.07B|
|OCF Growth Year-On-Year||-30.55%||17.48%||9.42%|
|OCF Growth From Current Year||-18.41%||-10.72%|
Low free cash flow yield means you are not currently well-compensated for the risk you’re taking on by holding onto Altice relative to a well-diversified market index. Moreover, the stock’s negative growth prospects in terms of cash flow, seems worrisome. Now you know to keep cash flows in mind, I suggest you continue to research Altice to get a better picture of the company by looking at:
- Valuation: What is ATC 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 ATC 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 Altice’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.