Yahoo Finance Huazhu Group Limited (NASDAQ:HTHT): How Much Money Comes Back To Investors?
Huazhu Group Limited (NASDAQ:HTHT) 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. I’ve analysed below, the health and outlook of HTHT’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 Huazhu Group
Is Huazhu Group generating enough cash?
Huazhu Group’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 Huazhu Group to continue to grow, or at least, maintain its current operations.
I will be analysing Huazhu Group’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
Huazhu Group’s yield of 13.52% last year indicates its ability to produce cash well-above the market index, given the size of the company. This means investors are adequately rewarded for the risk they take on by overweighting Huazhu Group.
Is Huazhu Group’s yield sustainable?
Does HTHT’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 couple of years, the company is expected to grow its cash from operations at a double-digit rate of 33%, ramping up from its current levels of CN¥3.0b to CN¥4.0b in two years’ time. Furthermore, breaking down growth into a year on year basis, HTHT is able to increase its growth rate each year, from 3.4% next year, to 29% in the following year. The overall future outlook seems buoyant if HTHT can maintain its levels of capital expenditure as well.
Next Steps:
Not only does Huazhu Group offer a yield above the market index, its operating cash flow growth in the short run further strengthens its case as a solid company to invest in going forward. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I recommend you continue to research Huazhu Group to get a better picture of the company by looking at:
Valuation: What is HTHT 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 HTHT 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 Huazhu Group’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.
