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Two important questions to ask before you buy Tassal Group Limited (ASX:TGR) is, how it makes money and how it spends its cash. This difference directly flows down to how much the stock is worth. Operating in the industry, TGR is currently valued at AU$769m. I’ve analysed below, the health and outlook of TGR’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.
What is Tassal Group’s cash yield?
Free cash flow (FCF) is the amount of cash Tassal Group 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.
There are two methods I will use to evaluate the quality of Tassal Group’s FCF: firstly, I will measure its FCF yield relative to the market index yield; secondly, I will examine whether its operating cash flow will continue to grow into the future, which will give us a sense of sustainability.
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
The business reinvests all its cash profits as well as borrows more money, to maintain and grow the company. This leads to a negative FCF, as well as negative FCF yield, in which case is not a very useful measure.
Is Tassal Group’s yield sustainable?
Can Tassal Group improve its operating cash production in the future? Let’s take a quick look at the cash flow trend Tassal Group is expected to deliver over time. Over the next couple years, the company is expected to grow its cash from operations at a double-digit rate of 86%, ramping up from its current levels of AU$44m to AU$82m in three years’ time. Although this seems impressive, breaking down into year-on-year growth rates, TGR’s operating cash flow growth is expected to decline from a rate of 43% in the upcoming year, to 5.0% by the end of the third year. However the overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.
Now you know to keep cash flows in mind, I recommend you continue to research Tassal Group to get a better picture of the company by looking at:
- Valuation: What is TGR 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 TGR 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 Tassal Group’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 email@example.com.