Two important questions to ask before you buy NH Hotel Group SA (BME:NHH) 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 hotels, resorts and cruise lines industry, NH Hotel Group is currently valued at €2.46b. I’ve analysed below, the health and outlook of NH Hotel Group’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.
What is free cash flow?
Free cash flow (FCF) is the amount of cash NH Hotel Group 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.
I will be analysing NH Hotel 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
Although, NH Hotel Group generate sufficient cash from its operational activities, its FCF yield of 7.71% is roughly in-line with the broader market’s high single-digit yield. This means investors are being compensated at the same level as they would be if they just held the well-diversified market index.
Does NH Hotel Group have a favourable cash flow trend?Can NH Hotel Group improve its operating cash production in the future? Let’s take a quick look at the cash flow trend the company is expected to deliver over time. In the next few years, NH Hotel Group’s operating cash flows is expected to grow by 6.63%, which is encouraging, should capital expenditure levels maintain at an appropriate level. Below is a table of NH Hotel Group’s operating cash flow in the past year, as well as the anticipated level going forward.
|Current||+1 year||+2 year|
|Operating Cash Flow (OCF)||€234.20m||€232.18m||€249.73m|
|OCF Growth Year-On-Year||-0.86%||7.56%|
|OCF Growth From Current Year||6.63%|
NH Hotel Group is compensating investors at a cash yield similar to the wider market portfolio. However, you are taking on more risk by holding a single-stock rather than the well-diversified market index. This means, in terms of risk and return, it’s not the best deal. Now you know to keep cash flows in mind, You should continue to research NH Hotel Group to get a better picture of the company by looking at:
- Valuation: What is NHH 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 NHH 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 NH Hotel 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 firstname.lastname@example.org.