If you are currently a shareholder in John Bean Technologies Corporation (NYSE:JBT), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. 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 John Bean Technologies’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 John Bean Technologies’s cash yield?
John Bean Technologies 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.
The two ways to assess whether John Bean Technologies’s FCF is sufficient, is to compare the FCF yield to the market index yield, as well as determine whether the top-line operating cash flows will continue to grow.
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
Along with a positive operating cash flow, John Bean Technologies also generates a positive free cash flow. However, the yield of 3.3% is not sufficient to compensate for the level of risk investors are taking on. This is because John Bean Technologies’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
Is John Bean Technologies’s yield sustainable?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 John Bean Technologies’s expected operating cash flows. In the next few years, a double-digit growth in operating cash of 36% is expected. The future seems buoyant if John Bean Technologies can maintain its levels of capital expenditure as well. Below is a table of John Bean Technologies’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)||US$154m||US$136m||US$184m||US$210m|
|OCF Growth Year-On-Year||-12%||36%||14%|
|OCF Growth From Current Year||20%||36%|
Given a low free cash flow yield, on the basis of cash, John Bean Technologies becomes a less appealing investment. 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. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I recommend you continue to research John Bean Technologies to get a more holistic view of the company by looking at:
- Valuation: What is JBT 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 JBT 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 John Bean Technologies’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.
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 email@example.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.