Do You Know Spirit Airlines Inc’s (NYSE:SAVE) Cash Situation?
If you are currently a shareholder in Spirit Airlines Inc (NYSE:SAVE), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. I’ve analysed below, the health and outlook of SAVE’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.
View our latest analysis for Spirit Airlines
Is Spirit Airlines generating enough cash?
Free cash flow (FCF) is the amount of cash Spirit Airlines 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.
The two ways to assess whether Spirit Airlines’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
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.
Is Spirit Airlines’s yield sustainable?
Spirit Airlines’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 83%, ramping up from its current levels of US$346m to US$634m in two years’ time. Although this seems impressive, breaking down into year-on-year growth rates, SAVE’s operating cash flow growth is expected to decline from a rate of 38% next year, to 33% in the following year. But the overall future outlook seems buoyant if SAVE can maintain its levels of capital expenditure as well.
Next Steps:
Now you know to keep cash flows in mind, I recommend you continue to research Spirit Airlines to get a more holistic view of the company by looking at:
Historical Performance: What has SAVE’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Spirit Airlines’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.
