How Much Money Does CRH Medical Corporation (TSE:CRH) Make?
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Two important questions to ask before you buy CRH Medical Corporation (TSE:CRH) 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 industry, CRH is currently valued at CA$306m. I will take you through CRH’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.
View our latest analysis for CRH Medical
What is CRH Medical’s cash yield?
CRH Medical 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.
The two ways to assess whether CRH Medical’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.
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
In CRH Medical’s case, its strong FCF yield of 11.35% over the past year means it sufficiently compensates investors for the risk they are taking on by investing in the stock, as opposed to merely investing in the well-diversified market index.
Is CRH Medical’s yield sustainable?
Can CRH 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, the company is expected to grow its cash from operations at a double-digit rate of 33%, ramping up from its current levels of US$43m to US$58m in two years’ time. Although this seems impressive, breaking down into year-on-year growth rates, CRH’s operating cash flow growth is expected to decline from a rate of 21% next year, to 9.6% in the following year. However the overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.
Next Steps:
CRH Medical provides an attractive cash yield above the market, as well as a strong future cash flow outlook, which reinforces the impression that it is a strong investment case. Now you know to keep cash flows in mind, I suggest you continue to research CRH Medical to get a more holistic view of the company by looking at:
Valuation: What is CRH 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 CRH 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 CRH Medical’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.
