Is Tableau Software Inc’s (NYSE:DATA) Cash Outlook Optimistic?
Tableau Software Inc (NYSE:DATA) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. Today we will examine DATA’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.
View our latest analysis for Tableau Software
What is free cash flow?
Tableau Software’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 Tableau Software to continue to grow, or at least, maintain its current operations.
I will be analysing Tableau Software’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, Tableau Software also generates a positive free cash flow. However, the yield of 0.29% is not sufficient to compensate for the level of risk investors are taking on. This is because Tableau Software’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
Is Tableau Software’s yield sustainable?
Can DATA 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. Over the next couple of years, DATA’s operating cash flows is expected to more than double from the current level of US$152m, which is highly optimistic, so long as capital expenditure doesn’t ramp up by even more. Although this seems impressive, breaking down into year-on-year growth rates, DATA’s operating cash flow growth is expected to decline from a rate of 29% in the upcoming year, to 25% by the end of the third year.
Next Steps:
The company’s low yield relative to the market index means you are taking on more risk holding the single-stock Tableau Software 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 recommend you continue to research Tableau Software to get a more holistic view of the company by looking at:
Valuation: What is DATA 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 DATA 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 Tableau Software’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.
