Two important questions to ask before you buy Euronet Worldwide, Inc. (NASDAQ:EEFT) is, how it makes money and how it spends its cash. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. Today we will examine Euronet Worldwide’s ability to generate cash flows, as well as the level of capital expenditure it is expected to incur over the next couple of years, which will result in how much money goes to you.
See our latest analysis for Euronet Worldwide
Is Euronet Worldwide generating enough cash?
Euronet Worldwide 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 Euronet Worldwide’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, Euronet Worldwide also generates a positive free cash flow. However, the yield of 4.15% is not sufficient to compensate for the level of risk investors are taking on. This is because Euronet Worldwide’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
What’s the cash flow outlook for Euronet Worldwide?
Does Euronet Worldwide’s future look brighter in terms of its ability to generate higher operating cash flows? This can be estimated by examining the trend of the company’s operating cash flow moving forward. Over the next two years, a double-digit growth in operating cash of 44% is expected. The future seems buoyant if Euronet Worldwide can maintain its levels of capital expenditure as well. Below is a table of Euronet Worldwide’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$397m | US$576m | US$574m |
| OCF Growth Year-On-Year | 45% | -0.5% | |
| OCF Growth From Current Year | 44% |
Next Steps:
Low free cash flow yield means you are not currently well-compensated for the risk you’re taking on by holding onto Euronet Worldwide relative to a well-diversified market index. However, the high growth in operating cash flow may change the tides in the future. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I suggest you continue to research Euronet Worldwide to get a better picture of the company by looking at:
- Valuation: What is EEFT 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 EEFT 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 Euronet Worldwide’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 editorial-team@simplywallst.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.