Sunworks Inc (NASDAQ:SUNW) 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 electrical components and equipment industry, Sunworks is currently valued at US$17.8m. I will take you through Sunworks’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.
What is Sunworks’s cash yield?
Free cash flow (FCF) is the amount of cash Sunworks 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.
I will be analysing Sunworks’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
In Sunworks’s case, its strong FCF yield of 11.39% over the past year means it sufficiently compensates investors for the risk they are taking on by investing in the stock, as opposed to merely investing in the well-diversified market index.
Does Sunworks have a favourable cash flow trend?Can Sunworks 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. Over the next two years, Sunworks is expected to deliver a decline in operating cash flow compared to the most recent level, which is not an encouraging sign. Below is a table of Sunworks’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$2.8m||-US$2.1m||US$186.8k|
|OCF Growth Year-On-Year||-22.9%||-109%|
|OCF Growth From Current Year||-107%|
The outcome of Sunworks’s cash flow analysis is compelling. Its high potential lies in above-market cash yield as well as a strong cash flow growth outlook. Now you know to keep cash flows in mind, I suggest you continue to research Sunworks to get a more holistic view of the company by looking at:
- Historical Performance: What has SUNW’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Sunworks’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.