Yahoo Finance Is SJM Holdings Limited (HKG:880) Spending Too Much Money?
If you are currently a shareholder in SJM Holdings Limited (HKG:880), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. This difference directly flows down to how much the stock is worth. Operating in the casinos and gaming industry, 880 is currently valued at HK$36.7b. I’ve analysed below, the health and outlook of 880’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.
Check out our latest analysis for SJM Holdings
Is SJM Holdings generating enough cash?
SJM Holdings 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.
There are two methods I will use to evaluate the quality of SJM Holdings’s FCF: firstly, I will measure its FCF yield relative to the market index yield; secondly, I will examine whether its operating cash flow will continue to grow into the future, which will give us a sense of sustainability.
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
The business reinvests all its cash profits as well as borrows more money, to maintain and grow the company. This leads to a negative FCF, as well as negative FCF yield, in which case is not a very useful measure.
What’s the cash flow outlook for SJM Holdings?
Can SJM Holdings improve its operating cash production in the future? Let’s take a quick look at the cash flow trend SJM Holdings is expected to deliver over time. Over the next couple years, the company is expected to grow its cash from operations at a double-digit rate of 73%, ramping up from its current levels of HK$3.9b to HK$6.8b in three years’ time. Although this seems impressive, breaking down into year-on-year growth rates, 880’s operating cash flow growth is expected to decline from a rate of 15% in the upcoming year, to 13% by the end of the third year. However the overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.
Next Steps:
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 SJM Holdings to get a more holistic view of the company by looking at:
Valuation: What is 880 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 880 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 SJM Holdings’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.
