If you are currently a shareholder in j2 Global, Inc. (NASDAQ:JCOM), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. This difference directly flows down to how much the stock is worth. Operating in the industry, j2 Global is currently valued at US$3.4b. I’ve analysed below, the health and outlook of j2 Global’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.
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What is j2 Global’s cash yield?
j2 Global 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.
I will be analysing j2 Global’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
Although, j2 Global generate sufficient cash from its operational activities, its FCF yield of 8.81% is roughly in-line with the broader market’s high single-digit yield. This means investors are being compensated at the same level as they would be if they just held the well-diversified market index.
What’s the cash flow outlook for j2 Global?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 j2 Global’s expected operating cash flows. In the next few years, j2 Global’s operating cash flows is expected to grow by a double-digit 10%, which is encouraging, should capital expenditure levels maintain at an appropriate level. Below is a table of j2 Global’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$380m||US$399m||US$419m|
|OCF Growth Year-On-Year||5.1%||5.0%|
|OCF Growth From Current Year||10%|
j2 Global’s positive operating cash flow is encouraging, and its yield is relatively similar to the market index. However, if you factor in the higher risk of holding just j2 Global compared to the well-diversified market index, the stock doesn’t seem as appealing. 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 j2 Global to get a better picture of the company by looking at:
- Valuation: What is JCOM 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 JCOM 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 j2 Global’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.