Yahoo Finance How Much Money Does Melco International Development Limited (HKG:200) Make?
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Two important questions to ask before you buy Melco International Development Limited (HKG:200) is, how it makes money and how it spends its cash. This difference directly flows down to how much the stock is worth. Operating in the industry, 200 is currently valued at HK$29b. I will take you through 200’s cash flow health and the risk-return concept based on the stock’s cash flow yield, using the most recent financial data. This will help you think about the company from a cash perspective, which is a crucial factor to investing.
See our latest analysis for Melco International Development
What is Melco International Development's cash yield?
Melco International Development 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.
The two ways to assess whether Melco International Development’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
In Melco International Development’s case, its strong FCF yield of 13.41% over the past year means it sufficiently compensates investors for the risk they are taking on by investing in the stock, as opposed to merely investing in the well-diversified market index.
Is Melco International Development's yield sustainable?
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 200’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 40%, ramping up from its current levels of HK$8.5b to HK$12b in three years’ time. Although this seems impressive, breaking down into year-on-year growth rates, 200's operating cash flow growth is expected to decline from a rate of 20% in the upcoming year, to 6.5% by the end of the third year. However the overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.
Next Steps:
Not only does Melco International Development 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. Now you know to keep cash flows in mind, I suggest you continue to research Melco International Development to get a better picture of the company by looking at:
Valuation: What is 200 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 200 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 Melco International Development’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.
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 editorial-team@simplywallst.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.
