Does Big Lots Inc (NYSE:BIG) Generate Enough Cash?
Two important questions to ask before you buy Big Lots Inc (NYSE:BIG) 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 general merchandise stores industry, BIG is currently valued at US$1.6b. I’ve analysed below, the health and outlook of BIG’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 Big Lots
What is free cash flow?
Big Lots’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 Big Lots to continue to grow, or at least, maintain its current operations.
I will be analysing Big Lots’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.
What’s the cash flow outlook for Big Lots?
Big Lots’s FCF may be negative today, but is operating cash flows expected to improve in the future? Let’s examine the cash flow trend the company is anticipated to produce over time. Over the next few years, the company is expected to grow its cash from operations at a double-digit rate of 36%, ramping up from its current levels of US$261m to US$356m in two years’ time. Although this seems impressive, breaking down into year-on-year growth rates, BIG’s operating cash flow growth is expected to decline from a rate of 29% next year, to 5.8% in the following year. However the overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.
Next Steps:
Now you know to keep cash flows in mind, I recommend you continue to research Big Lots to get a better picture of the company by looking at:
Valuation: What is BIG 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 BIG 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 Big Lots’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.
