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Two important questions to ask before you buy Heliospectra AB (publ) (STO:HELIO) 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 electrical components and equipment industry, HELIO is currently valued at kr283.0m. I will take you through HELIO’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 Heliospectra
What is free cash flow?
Heliospectra’s free cash flow (FCF) is the level of cash flow the business generates from its operational activities, after it reinvests in the company as capital expenditure. This type of expense is needed for Heliospectra to continue to grow, or at least, maintain its current operations.
I will be analysing Heliospectra’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
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.
Does Heliospectra have a favourable cash flow trend?
Can Heliospectra improve its operating cash production in the future? Let’s take a quick look at the cash flow trend Heliospectra is expected to deliver over time. In the next couple of years, expected growth for HELIO’s operating cash is negative, with operating cash flows expected to decline from its current level of -kr20.3m. This is unfavourable to its future outlook, especially if capital expenditure heads the opposite direction. Breaking down operating cash growth into a year-on-year basis, it seems like HELIO will face a continued decline in growth rates, from -13.7% next year, to -82.3% in the following year.
Next Steps:
Now you know to keep cash flows in mind, I recommend you continue to research Heliospectra to get a more holistic view of the company by looking at:
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Valuation: What is HELIO 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 HELIO is currently mispriced by the market.
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Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Heliospectra’s board and the CEO’s back ground.
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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 editorial-team@simplywallst.com.