Two important questions to ask before you buy Robert Half International Inc. (NYSE:RHI) is, how it makes money and how it spends its cash. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. I will take you through Robert Half International’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.
What is Robert Half International’s cash yield?
Robert Half International’s free cash flow (FCF) is the level of cash flow the business generates from its operational activities, after it reinvests in the company as capital expenditure. This type of expense is needed for Robert Half International to continue to grow, or at least, maintain its current operations.
There are two methods I will use to evaluate the quality of Robert Half International’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
Robert Half International’s yield of 6.98% 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 Robert Half International is higher, this may mean inadequate compensation above and beyond merely investing in the whole market.
Is Robert Half International’s yield sustainable?Does Robert Half International’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 two years, a growth of high single-digit 6.3% is somewhat optimistic, so long as capital expenditure doesn’t ramp up by even more. Below is a table of Robert Half International’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)||US$572m||US$593m||US$608m|
|OCF Growth Year-On-Year||3.6%||2.6%|
|OCF Growth From Current Year||6.3%|
Robert Half International 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 Robert Half International to get a more holistic view of the company by looking at:
- Valuation: What is RHI 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 RHI 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 Robert Half International’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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.