How Much Money Does Napco Security Technologies, Inc. (NASDAQ:NSSC) Make?
If you are currently a shareholder in Napco Security Technologies, Inc. (NASDAQ:NSSC), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. I’ve analysed below, the health and outlook of NSSC’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.
See our latest analysis for Napco Security Technologies
What is Napco Security Technologies’s cash yield?
Napco Security Technologies’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 Napco Security Technologies to continue to grow, or at least, maintain its current operations.
I will be analysing Napco Security Technologies’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
Along with a positive operating cash flow, Napco Security Technologies also generates a positive free cash flow. However, the yield of 2.22% is not sufficient to compensate for the level of risk investors are taking on. This is because Napco Security Technologies’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
Is Napco Security Technologies’s yield sustainable?
Does NSSC’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 few years, the company is expected to grow its cash from operations at a double-digit rate of 15%, ramping up from its current levels of US$9.5m to US$11m in two years’ time. Furthermore, breaking down growth into a year on year basis, NSSC is able to increase its growth rate each year, from -3.8% next year, to 19% in the following year. The overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.
Next Steps:
The company’s low yield relative to the market index means you are taking on more risk holding the single-stock Napco Security Technologies as opposed to the diversified market portfolio, and being compensated for less. Though the high operating cash flow growth in the future could change this. Now you know to keep cash flows in mind, I suggest you continue to research Napco Security Technologies to get a better picture of the company by looking at:
Valuation: What is NSSC 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 NSSC 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 Napco Security Technologies’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.
