Is oOh!media Limited (ASX:OML) Spending Too Much Money?

If you are currently a shareholder in oOh!media Limited (ASX:OML), 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 advertising industry, oOh!media is currently valued at AU$1.14b. Today we will examine oOh!media’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.

See our latest analysis for oOh!media

Is oOh!media generating enough cash?

Free cash flow (FCF) is the amount of cash oOh!media 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 oOh!media’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.

Along with a positive operating cash flow, oOh!media also generates a positive free cash flow. However, the yield of 1.22% is not sufficient to compensate for the level of risk investors are taking on. This is because oOh!media’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.

What’s the cash flow outlook for oOh!media?

Does oOh!media’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. Over the next three years, oOh!media’s operating cash flows is expected to grow by a double-digit 65.39%, which is encouraging, should capital expenditure levels maintain at an appropriate level. Below is a table of oOh!media’s operating cash flow in the past year, as well as the anticipated level going forward.

	Current	+1 year	+2 year	+3 year
Operating Cash Flow (OCF)	AU$50.38m	AU$71.98m	AU$77.13m	AU$83.32m
OCF Growth Year-On-Year		42.87%	7.17%	8.02%
OCF Growth From Current Year			53.11%	65.39%

Next Steps:

Given a low free cash flow yield, on the basis of cash, oOh!media becomes a less appealing investment. This is because you would be better compensated in terms of cash yield, by investing in the market index, as well as take on lower diversification risk. 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 oOh!media to get a more holistic view of the company by looking at:

1. Valuation: What is OML 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 OML 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 oOh!media’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.

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.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.