Is Perficient, Inc. (NASDAQ:PRFT) Spending Too Much Money?

Perficient, Inc. (NASDAQ:PRFT) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. 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 Perficient’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.

See our latest analysis for Perficient

What is Perficient’s cash yield?

Free cash flow (FCF) is the amount of cash Perficient 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 Perficient’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

Perficient’s yield of 6.08% last year indicates its ability to produce cash at the same rate as the market index, taking into account the company’s size. However, given that the risk for holding single-stock Perficient is higher, this may mean inadequate compensation above and beyond merely investing in the whole market.

NasdaqGS:PRFT Balance Sheet Net Worth, March 3rd 2019
NasdaqGS:PRFT Balance Sheet Net Worth, March 3rd 2019

Is Perficient’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 Perficient’s expected operating cash flows. In the next couple of years, a growth of low single-digit 0.5% isn’t exciting, but it may be adequate, so long as capital expenditure doesn’t ramp up by even more. Below is a table of Perficient’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$69m US$63m US$69m
OCF Growth Year-On-Year -7.9% 9.1%
OCF Growth From Current Year 0.5%

Next Steps:

The yield you receive on Perficient is in-line with that of holding the broader market index. But, in saying this, investors are taking on more risk by buying one single stock as opposed to a diversified market portfolio, but they are being compensated at the same level. Not the best deal! 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 Perficient to get a better picture of the company by looking at:

  1. Valuation: What is PRFT 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 PRFT is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Perficient’s board and the CEO’s back ground.
  3. 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.