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If you are currently a shareholder in Wasion Holdings Limited (HKG:3393), 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. I will take you through 3393’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 Wasion Holdings
Is Wasion Holdings generating enough cash?
Free cash flow (FCF) is the amount of cash Wasion Holdings has left after it pays off its expenses, including its net capital expenditures, which is what the company needs to spend each year to maintain or grow its business operations.
The two ways to assess whether Wasion Holdings’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
Along with a positive operating cash flow, Wasion Holdings also generates a positive free cash flow. However, the yield of 3.75% is not sufficient to compensate for the level of risk investors are taking on. This is because Wasion Holdings’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.
Does Wasion Holdings have a favourable cash flow trend?
Can 3393 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 couple of years, the company is expected to grow its cash from operations at a low single-digit rate of 0.9%, increasing from its current levels of CN¥384m to CN¥388m. Furthermore, breaking down growth into a year on year basis, 3393 is able to increase its growth rate each year, from -5.8% next year, to 7.2% in the following year. The overall future outlook seems relatively optimistic if 3393 can maintain its levels of capital expenditure as well.
Next Steps:
The company’s low yield relative to the market index means you are taking on more risk holding the single-stock Wasion Holdings as opposed to the diversified market portfolio, and also being compensated for less. Furthermore, its muted operating cash flow growth doesn’t seem appealing. Now you know to keep cash flows in mind, I recommend you continue to research Wasion Holdings to get a more holistic view of the company by looking at: