Yahoo Finance Target Healthcare REIT Limited (LON:THRL): How Much Money Comes Back To Investors?
Target Healthcare REIT Limited (LON:THRL) 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. This difference directly flows down to how much the stock is worth. Operating in the industry, THRL is currently valued at UK£410m. I’ve analysed below, the health and outlook of THRL’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.
See our latest analysis for Target Healthcare REIT
What is free cash flow?
Target Healthcare REIT’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 Target Healthcare REIT to continue to grow, or at least, maintain its current operations.
The two ways to assess whether Target Healthcare REIT’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
Target Healthcare REIT’s yield of 4.88% indicates its sub-standard capacity to generate cash, compared to the stock market index as a whole, accounting for the size differential. This means investors are taking on more concentrated risk on Target Healthcare REIT but are not being adequately rewarded for doing so.
Is Target Healthcare REIT’s yield sustainable?
Can THRL 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 21%, ramping up from its current levels of UK£22m to UK£27m in three years’ time. Furthermore, breaking down growth into a year on year basis, THRL is able to increase its growth rate each year, from -2.9% in the upcoming year, to 3.5% by the end of the third year. The overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.
Next Steps:
Low free cash flow yield means you are not currently well-compensated for the risk you’re taking on by holding onto Target Healthcare REIT relative to a well-diversified market index. However, the high growth in operating cash flow may change the tides in the future. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I suggest you continue to research Target Healthcare REIT to get a better picture of the company by looking at:
Valuation: What is THRL 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 THRL 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 Target Healthcare REIT’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.
