Yahoo Finance Have You Considered This Before Investing In Abacus Property Group (ASX:ABP)?
If you are currently a shareholder in Abacus Property Group (ASX:ABP), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. 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 ABP’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 Abacus Property Group
Is Abacus Property Group generating enough cash?
Abacus Property Group 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 Abacus Property 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
Abacus Property Group’s yield of 6.91% 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 Abacus Property Group is higher, this may mean inadequate compensation above and beyond merely investing in the whole market.
What’s the cash flow outlook for Abacus Property Group?
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 ABP’s expected operating cash flows. In the next couple of years, ABP is expected to deliver a decline in operating cash flow compared to the most recent level of AU$194m, which is not an encouraging sign. However, breaking down growth into a year on year basis, ABP ‘s negative growth rate improves each year, from -16% in the upcoming year, to -11% by the end of the third year.
Next Steps:
The company’s average yield compared to the market index means you are taking on more risk holding the single-stock Abacus Property Group as opposed to the diversified market portfolio. In addition to this, the negative growth outlook for operating cash flows is discouraging. 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 Abacus Property Group to get a more holistic view of the company by looking at:
Valuation: What is ABP 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 ABP 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 Abacus Property 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.
