TTM Technologies, Inc. (NASDAQ:TTMI) 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. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. Today we will examine TTMI’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.
Is TTM Technologies generating enough cash?
TTM Technologies generates cash through its day-to-day business, which needs to be reinvested into the company in order for it to continue operating. What remains after this expenditure, is known as its free cash flow, or FCF, for short.
I will be analysing TTM 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
TTM Technologies’s yield of 8.31% 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 TTM Technologies is higher, this may mean inadequate compensation above and beyond merely investing in the whole market.
What’s the cash flow outlook for TTM Technologies?
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 TTMI’s expected operating cash flows. In the next couple of years, the company is expected to grow its cash from operations at a double-digit rate of 27%, ramping up from its current levels of US$274m to US$347m in two years’ time. Furthermore, breaking down growth into a year on year basis, TTMI is able to increase its growth rate each year, from -9.5% next year, to 40% in the following year. The overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.
TTM Technologies is compensating investors at a cash yield similar to the wider market portfolio. But, in saying this, investors are taking on more risk by buying one single stock as opposed to a diversified market portfolio, but they are being compensated at the same level. Not the best deal! Now you know to keep cash flows in mind, You should continue to research TTM Technologies to get a more holistic view of the company by looking at:
- Valuation: What is TTMI 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 TTMI 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 TTM 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.
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If you spot an error that warrants correction, please contact the editor at email@example.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.