Yahoo Finance Are Kuehne + Nagel International AG (VTX:KNIN) Shareholders Getting A Good Deal?
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If you are currently a shareholder in Kuehne + Nagel International AG (VTX:KNIN), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. I will take you through KNIN’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.
Check out our latest analysis for Kuehne + Nagel International
Is Kuehne + Nagel International generating enough cash?
Kuehne + Nagel International 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.
There are two methods I will use to evaluate the quality of Kuehne + Nagel International’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
Along with a positive operating cash flow, Kuehne + Nagel International also generates a positive free cash flow. However, the yield of 1.62% is not sufficient to compensate for the level of risk investors are taking on. This is because Kuehne + Nagel International’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
Is Kuehne + Nagel International’s yield sustainable?
Another important consideration is whether this return is likely to be maintained over the next couple of years. We can gauge this by looking at KNIN’s expected operating cash flows. Over the next couple years, the company is expected to grow its cash from operations at a double-digit rate of 89%, ramping up from its current levels of CHF688m to CHF1.3b in three years’ time. Although this seems impressive, breaking down into year-on-year growth rates, KNIN’s operating cash flow growth is expected to decline from a rate of 41% in the upcoming year, to 24% by the end of the third year. However the overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.
Next Steps:
Low free cash flow yield means you are not currently well-compensated for the risk you’re taking on by holding onto Kuehne + Nagel International relative to a well-diversified market index. However, the high growth in operating cash flow may change the tides in the future. Now you know to keep cash flows in mind, I suggest you continue to research Kuehne + Nagel International to get a better picture of the company by looking at:
Valuation: What is KNIN 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 KNIN 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 Kuehne + Nagel International’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 editorial-team@simplywallst.com.
