Yahoo Finance Barratt Developments PLC (LON:BDEV): How Much Money Comes Back To Investors?
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If you are currently a shareholder in Barratt Developments PLC (LON:BDEV), 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, BDEV is currently valued at UK£6.3b. I will take you through BDEV’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 Barratt Developments
Is Barratt Developments generating enough cash?
Barratt Developments’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 Barratt Developments to continue to grow, or at least, maintain its current operations.
There are two methods I will use to evaluate the quality of Barratt Developments’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
In Barratt Developments’s case, its strong FCF yield of 11.39% over the past year means it sufficiently compensates investors for the risk they are taking on by investing in the stock, as opposed to merely investing in the well-diversified market index.
Is Barratt Developments's yield sustainable?
Can BDEV 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. Over the next three years, the company is expected to grow its cash from operations at a single-digit rate of 5.9%, increasing from its current levels of UK£681m to UK£721m in three years’ time. Furthermore, breaking down growth into a year on year basis, BDEV is able to increase its growth rate each year, from -12% in the upcoming year, to 7.2% by the end of the third year. The overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.
Next Steps:
Although Barratt Developments provides an attractive cash flow yield relative to the market index, its expected negative cash flow growth raises concerns around whether this yield is sustainable. 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 Barratt Developments to get a better picture of the company by looking at:
Valuation: What is BDEV 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 BDEV 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 Barratt Developments’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.
