If you are currently a shareholder in Cardlytics Inc (NASDAQ:CDLX), 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 will take you through Cardlytics’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.
Is Cardlytics generating enough cash?
Cardlytics 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 Cardlytics’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
The business reinvests all its cash profits as well as borrows more money, to maintain and grow the company. This leads to a negative FCF, as well as negative FCF yield, in which case is not a very useful measure.
Does Cardlytics have a favourable cash flow trend?Can Cardlytics improve its operating cash production in the future? Let’s take a quick look at the cash flow trend Cardlytics is expected to deliver over time. Over the next three years, expected growth for Cardlytics’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 Cardlytics’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$28.8m||-US$20.0m||-US$10.7m||US$32.0m|
|OCF Growth Year-On-Year||-30.5%||-46.7%||-400%|
|OCF Growth From Current Year||-62.9%||-211%|
Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. You should continue to research Cardlytics to get a more holistic view of the company by looking at:
- Valuation: What is CDLX 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 CDLX 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 Cardlytics’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.