Want to participate in a research study? Help shape the future of investing tools and earn a $60 gift card!
Two important questions to ask before you buy Euronet Worldwide, Inc. (NASDAQ:EEFT) 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 industry, EEFT is currently valued at US$7.3b. I will take you through EEFT’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.
What is Euronet Worldwide's cash yield?
Free cash flow (FCF) is the amount of cash Euronet Worldwide has left after it pays off its expenses, including its net capital expenditures, which is what the company needs to spend each year to maintain or grow its business operations.
There are two methods I will use to evaluate the quality of Euronet Worldwide’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, Euronet Worldwide also generates a positive free cash flow. However, the yield of 4.13% is not sufficient to compensate for the level of risk investors are taking on. This is because Euronet Worldwide’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
Does Euronet Worldwide have a favourable cash flow trend?
Can EEFT 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, the company is expected to grow its cash from operations at a double-digit rate of 44%, ramping up from its current levels of US$397m to US$574m in two years’ time. Although this seems impressive, breaking down into year-on-year growth rates, EEFT's operating cash flow growth is expected to decline from a rate of 45% next year, to -0.5% in the following year. But the overall future outlook seems buoyant if EEFT can maintain its levels of capital expenditure as well.
Given a low free cash flow yield, on the basis of cash, Euronet Worldwide becomes a less appealing investment. This is because you would be better compensated in terms of cash yield, by investing in the market index, as well as take on lower diversification risk. However, cash is only one aspect of investing. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. You should continue to research Euronet Worldwide to get a better picture of the company by looking at:
- Valuation: What is EEFT 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 EEFT 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 Euronet Worldwide’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 email@example.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.