Volpara Health Technologies Limited (ASX:VHT): The Yield That Matters The Most
If you are currently a shareholder in Volpara Health Technologies Limited (ASX:VHT), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. Today we will examine VHT’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.
View our latest analysis for Volpara Health Technologies
What is free cash flow?
Volpara Health Technologies 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 Volpara Health Technologies’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
The business reinvests all its cash profits as well as borrows more money, to maintain and grow the company. This leads to a negative FCF, as well as negative FCF yield, in which case is not a very useful measure.
Is Volpara Health Technologies’s yield sustainable?
Can Volpara Health Technologies improve its operating cash production in the future? Let’s take a quick look at the cash flow trend Volpara Health Technologies is expected to deliver over time. In the next few years, VHT is expected to deliver a decline in operating cash flow compared to the most recent level of -NZ$9.6m, which is not an encouraging sign. Breaking down operating cash growth into a year-on-year basis, it seems like VHT will face a continued decline in growth rates, from -40% next year, to -140% in the following year.
Next Steps:
Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I recommend you continue to research Volpara Health Technologies to get a more holistic view of the company by looking at:
Valuation: What is VHT 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 VHT 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 Volpara Health Technologies’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.
