Capital Senior Living Corporation’s (NYSE:CSU) Most Important Factor To Consider
Capital Senior Living Corporation (NYSE:CSU) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. Today we will examine CSU’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. Check out our latest analysis for Capital Senior Living
What is free cash flow?
Capital Senior Living’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 Capital Senior Living to continue to grow, or at least, maintain its current operations. I will be analysing Capital Senior Living’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
Along with a positive operating cash flow, Capital Senior Living also generates a positive free cash flow. However, the yield of 2.03% is not sufficient to compensate for the level of risk investors are taking on. This is because Capital Senior Living’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
Does CSU have a favourable cash flow trend?
Does CSU’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. In the next couple of years, expected growth for CSU’s operating cash is negative, with operating cash flows expected to decline from its current level of US$57.99M. This is unfavourable to its future outlook, especially if capital expenditure heads the opposite direction. However, breaking down growth into a year on year basis, CSU ‘s negative growth rate improves each year, from -10.21% next year, to 10.02% in the following year.
Next Steps:
Low free cash flow yield means you are not currently well-compensated for the risk you’re taking on by holding onto Capital Senior Living relative to a well-diversified market index. Moreover, the stock’s negative growth prospects in terms of cash flow, seems worrisome. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. You should continue to research Capital Senior Living to get a better picture of the company by looking at:
1. Valuation: What is CSU 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 CSU 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 Capital Senior Living’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 pass 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.
