Two important questions to ask before you buy Navios Maritime Partners LP (NYSE:NMM) is, how it makes money and how it spends its cash. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. I will take you through NMM’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.
Is Navios Maritime Partners generating enough cash?
Navios Maritime Partners’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 Navios Maritime Partners to continue to grow, or at least, maintain its current operations.
I will be analysing Navios Maritime Partners’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
After accounting for capital expenses required to run the business, Navios Maritime Partners is not able to generate positive FCF, leading to a negative FCF yield – not very useful for interpretation!
Is Navios Maritime Partners’s yield sustainable?
Can Navios Maritime Partners improve its operating cash production in the future? Let’s take a quick look at the cash flow trend Navios Maritime Partners is expected to deliver over time. Over the next few years, the company is expected to grow its cash from operations at a double-digit rate of 38.0%, ramping up from its current levels of US$75.1m to US$103.6m in two years’ time. Furthermore, breaking down growth into a year on year basis, NMM is able to increase its growth rate each year, from -16.8% next year, to 65.9% in the following year. The overall future outlook seems buoyant if NMM can maintain its levels of capital expenditure as well.
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 Navios Maritime Partners to get a more holistic view of the company by looking at:
- Valuation: What is NMM 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 NMM 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 Navios Maritime Partners’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 email@example.com.