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Before Investing In Hooker Furniture Corporation (NASDAQ:HOFT), Consider This

Peter Morris

Hooker Furniture Corporation (NASDAQ:HOFT) 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. Today we will examine HOFT’s ability to generate cash flows, as well as the level of capital expenditure it is expected to incur over the next couple of years, which will result in how much money goes to you.

Check out our latest analysis for Hooker Furniture

What is Hooker Furniture’s cash yield?

Hooker Furniture 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.

The two ways to assess whether Hooker Furniture’s FCF is sufficient, is to compare the FCF yield to the market index yield, as well as determine whether the top-line operating cash flows will continue to grow.

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

Hooker Furniture’s yield of 5.32% last year indicates its ability to produce cash at the same rate as the market index, taking into account the company’s size. However, given that the risk for holding single-stock Hooker Furniture is higher, this may mean inadequate compensation above and beyond merely investing in the whole market.

NasdaqGS:HOFT Net Worth December 23rd 18

Does Hooker Furniture have a favourable cash flow trend?

Does HOFT’s future look brighter in terms of its ability to generate higher operating cash flows? This can be estimated by examining the trend of the company’s operating cash flow moving forward. In the next couple of years, the company is expected to grow its cash from operations at a double-digit rate of 49%, ramping up from its current levels of US$24m to US$35m in two years’ time. Although this seems impressive, breaking down into year-on-year growth rates, HOFT’s operating cash flow growth is expected to decline from a rate of 34% next year, to 12% in the following year. However the overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.

Next Steps:

High operating cash flow growth is a positive indication for Hooker Furniture’s future, which means it may be able to sustain the current cash yield. However, if you factor in the higher risk of holding just Hooker Furniture compared to the well-diversified market index, the stock doesn’t seem as appealing. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I recommend you continue to research Hooker Furniture to get a more holistic view of the company by looking at:

  1. Valuation: What is HOFT 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 HOFT is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Hooker Furniture’s board and the CEO’s back ground.
  3. 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.