If you are currently a shareholder in FastJet Plc (AIM:FJET), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. Today we will examine FJET’s ability to generate cash flows, as well as the level of capital expenditure it is expected to incur over the next couple of years, which will result in how much money goes to you. Check out our latest analysis for FastJet
What is FJET’s cash yield?
Free cash flow (FCF) is the amount of cash FJET 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 FJET’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
Although FJET generates positive cash flow from its operational activities, 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 FJET’s yield sustainable?
Can FJET improve its operating cash production in the future? Let’s take a quick look at the cash flow trend FJET is expected to deliver over time. In this case, analysts have only forecasted operating cash growth for one year, which makes it difficult to assess sustainability. However, just looking at the upcoming year outlook, a double-digit growth in operating cash of -70.22% is expected. The future seems buoyant if FJET can maintain its levels of capital expenditure as well.
What this means for you:
So, what is FJET actually worth? At the share price of £0.21, find out whether it is currently undervalued at a glance in our FREE easy-to-understand infographics report. If you’re curious about other attractive investments, explore our list of high-growth and undervalued stocks here.
To help readers see pass 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.