Do You Know Gibraltar Industries, Inc.’s (NASDAQ:ROCK) Cash Situation?
Two important questions to ask before you buy Gibraltar Industries, Inc. (NASDAQ:ROCK) 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, ROCK is currently valued at US$1.3b. Today we will examine ROCK’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.
See our latest analysis for Gibraltar Industries
What is Gibraltar Industries’s cash yield?
Free cash flow (FCF) is the amount of cash Gibraltar Industries 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.
I will be analysing Gibraltar Industries’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
Gibraltar Industries’s yield of 7.1% 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 Gibraltar Industries is higher, this may mean inadequate compensation above and beyond merely investing in the whole market.
Does Gibraltar Industries have a favourable cash flow trend?
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 ROCK’s expected operating cash flows. In the next few years, the company is expected to grow its cash from operations at a single-digit rate of 8.4%, increasing from its current levels of US$98m to US$106m in two years’ time. Furthermore, breaking down growth into a year on year basis, ROCK is able to increase its growth rate each year, from -6.5% next year, to 16% in the following year. The overall future outlook seems buoyant if ROCK can maintain its levels of capital expenditure as well.
Next Steps:
The yield you receive on Gibraltar Industries is in-line with that of holding the broader market index. However, you are taking on more risk by holding a single-stock rather than the well-diversified market index. This means, in terms of risk and return, it’s not the best deal. 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 Gibraltar Industries to get a better picture of the company by looking at:
Valuation: What is ROCK 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 ROCK 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 Gibraltar Industries’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.
