Is C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) Spending Too Much Money?

Two important questions to ask before you buy C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) is, how it makes money and how it spends its cash. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. I will take you through C.H. Robinson Worldwide’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.

View our latest analysis for C.H. Robinson Worldwide

What is free cash flow?

C.H. Robinson 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.

I will be analysing C.H. Robinson Worldwide’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

C.H. Robinson Worldwide’s yield of 5.54% 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 C.H. Robinson Worldwide is higher, this may mean inadequate compensation above and beyond merely investing in the whole market.

NasdaqGS:CHRW Balance Sheet Net Worth, April 1st 2019
NasdaqGS:CHRW Balance Sheet Net Worth, April 1st 2019

Is C.H. Robinson Worldwide’s yield sustainable?

Does C.H. Robinson 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. In the next couple of years, C.H. Robinson Worldwide’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 C.H. Robinson Worldwide’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$793m US$832m US$831m US$874m
OCF Growth Year-On-Year 5.0% -0.09% 5.1%
OCF Growth From Current Year 4.9% 10%

Next Steps:

C.H. Robinson Worldwide is compensating investors at a cash yield similar to the wider market portfolio. However, you are taking on more risk by holding a single-stock rather than the well-diversified market index. This means, in terms of risk and return, it’s 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 C.H. Robinson Worldwide to get a more holistic view of the company by looking at:

  1. Valuation: What is CHRW 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 CHRW 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 C.H. Robinson Worldwide’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.