If you are currently a shareholder in Conformis Inc (NASDAQ:CFMS), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. I’ve analysed below, the health and outlook of Conformis’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.
Is Conformis generating enough cash?
Free cash flow (FCF) is the amount of cash Conformis 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.
The two ways to assess whether Conformis’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
After accounting for capital expenses required to run the business, Conformis is not able to generate positive FCF, leading to a negative FCF yield – not very useful for interpretation!
Is Conformis’s yield sustainable?Can Conformis improve its operating cash production in the future? Let’s take a quick look at the cash flow trend Conformis is expected to deliver over time. In the next few years, expected growth for Conformis’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 Conformis’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$36.2m||-US$26.7m||-US$21.1m|
|OCF Growth Year-On-Year||-26%||-21%|
|OCF Growth From Current Year||-42%|
Now you know to keep cash flows in mind, You should continue to research Conformis to get a better picture of the company by looking at:
- Historical Performance: What has CFMS’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 Conformis’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.