Aventus Group (ASX:AVN): The Yield That Matters The Most
If you are currently a shareholder in Aventus Group (ASX:AVN), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. This difference directly flows down to how much the stock is worth. Operating in the industry, AVN is currently valued at AU$1.1b. I will take you through AVN’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 Aventus Group
What is Aventus Group’s cash yield?
Aventus Group 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 Aventus Group’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
Aventus Group’s yield of 4.94% 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 Aventus Group but are not being adequately rewarded for doing so.
Does Aventus Group have a favourable cash flow trend?
Another important consideration is whether this return is likely to be maintained over the next couple of years. We can gauge this by looking at AVN’s expected operating cash flows. In the next couple of years, the company is expected to grow its cash from operations at a single-digit rate of 9.4%, increasing from its current levels of AU$88m to AU$97m in three years’ time. Furthermore, breaking down growth into a year on year basis, AVN is able to increase its growth rate each year, from -5.4% in the upcoming year, to 2.8% 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 Aventus Group relative to a well-diversified market index. However, the high growth in operating cash flow may change the tides in the future. Now you know to keep cash flows in mind, I suggest you continue to research Aventus Group to get a more holistic view of the company by looking at:
Valuation: What is AVN 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 AVN 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 Aventus Group’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.