Yahoo Finance Black Knight, Inc. (NYSE:BKI): Cash Is King
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If you are currently a shareholder in Black Knight, Inc. (NYSE:BKI), 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, BKI is currently valued at US$8.0b. I’ve analysed below, the health and outlook of BKI’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 Black Knight
What is Black Knight's cash yield?
Black Knight 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 Black Knight’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, Black Knight also generates a positive free cash flow. However, the yield of 3.68% is not sufficient to compensate for the level of risk investors are taking on. This is because Black Knight’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
Does Black Knight have a favourable cash flow trend?
Does BKI’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 couple years, the company is expected to grow its cash from operations at a double-digit rate of 24%, ramping up from its current levels of US$436m to US$539m in three years’ time. Furthermore, breaking down growth into a year on year basis, BKI is able to increase its growth rate each year, from -0.4% in the upcoming year, to 15% by the end of the third year. The overall future outlook seems buoyant if BKI can maintain its levels of capital expenditure as well.
Next Steps:
Low free cash flow yield means you are not currently well-compensated for the risk you’re taking on by holding onto Black Knight relative to a well-diversified market index. However, the high growth in operating cash flow may change the tides in the future. Now you know to keep cash flows in mind, I suggest you continue to research Black Knight to get a more holistic view of the company by looking at:
Valuation: What is BKI 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 BKI 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 Black Knight’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.
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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.