Are Stock Spirits Group PLC (LON:STCK) Shareholders Getting A Good Deal?
Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!
Stock Spirits Group PLC (LON:STCK) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. I’ve analysed below, the health and outlook of STCK’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.
Check out our latest analysis for Stock Spirits Group
What is Stock Spirits Group’s cash yield?
Stock Spirits Group 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 Stock Spirits Group’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
Although, Stock Spirits Group generate sufficient cash from its operational activities, its FCF yield of 5.86% is roughly in-line with the broader market’s high single-digit yield. This means investors are being compensated at the same level as they would be if they just held the well-diversified market index.
Is Stock Spirits Group’s yield sustainable?
Can STCK improve its operating cash production in the future? Let’s take a quick look at the cash flow trend the company is expected to deliver over time. In the next few years, STCK is expected to deliver a decline in operating cash flow compared to the most recent level of €63m, which is not an encouraging sign. However, breaking down growth into a year on year basis, STCK ‘s negative growth rate improves each year, from -17% in the upcoming year, to 8.1% by the end of the third year.
Next Steps:
Stock Spirits Group is compensating investors at a cash yield similar to the wider market portfolio, but holding the stock on its own is riskier than investing in the diversified market, which means the yield is not that attractive on a risk-return basis. Furthermore, its declining operating cash flow doesn’t add to the investment case. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I suggest you continue to research Stock Spirits Group to get a more holistic view of the company by looking at:
Valuation: What is STCK 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 STCK 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 Stock Spirits 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.
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.
