Why Meridian Bioscience, Inc.’s (NASDAQ:VIVO) Cash Is A Factor You Need To Consider

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Two important questions to ask before you buy Meridian Bioscience, Inc. (NASDAQ:VIVO) 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. Today we will examine VIVO’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.

Check out our latest analysis for Meridian Bioscience

What is Meridian Bioscience's cash yield?

Free cash flow (FCF) is the amount of cash Meridian Bioscience 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 Meridian Bioscience’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

Along with a positive operating cash flow, Meridian Bioscience also generates a positive free cash flow. However, the yield of 4.84% is not sufficient to compensate for the level of risk investors are taking on. This is because Meridian Bioscience’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.

Does Meridian Bioscience have a favourable cash flow trend?

Can VIVO 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. In the next couple of 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$39m to US$45m in two years’ time. Although this seems impressive, breaking down into year-on-year growth rates, VIVO's operating cash flow growth is expected to decline from a rate of 8.8% next year, to 5.6% in the following year. However the overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.

Next Steps:

Low free cash flow yield means you are not currently well-compensated for the risk you’re taking on by holding onto Meridian Bioscience relative to a well-diversified market index. However, the high growth in operating cash flow may change the tides in the future. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I suggest you continue to research Meridian Bioscience to get a more holistic view of the company by looking at:

1. Valuation: What is VIVO 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 VIVO is currently mispriced by the market.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Meridian Bioscience’s board and the CEO’s back ground.
3. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at [email protected]. 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.