A strong performer from today's afternoon trading session is Yum China, whose shares rose 8.0% to $40.45 per share. For those of you thinking about investing in the stock, here is a brief value analysis of the stock using the company's basic fundamental ratios.
Yum China Has Attractive Multiples and Trades Below Its Graham Number:
Yum China Holdings, Inc. owns, operates, and franchises restaurants in the People's Republic of China. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.96 and an average price to book (P/B) ratio of 4.24. In contrast, Yum China has a trailing 12 month P/E ratio of 21.9 and a P/B ratio of 2.57.
When we divideYum China's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.01, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
Strong Revenue Growth With Increasing Reinvestment in the Business:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $8,415 | $8,776 | $8,263 | $9,853 | $9,569 | $10,573 |
| Revenue Growth | n/a | 4.29% | -5.85% | 19.24% | -2.88% | 10.49% |
| Operating Margins | 11% | 10% | 12% | 14% | 7% | 10% |
| Net Margins | 8% | 8% | 9% | 10% | 5% | 7% |
| Net Income (MM) | $708 | $713 | $784 | $990 | $442 | $783 |
| Net Interest Expense (MM) | $36 | $39 | $43 | $60 | $84 | $157 |
| Depreciation & Amort. (MM) | $445 | $428 | $450 | $516 | $602 | $474 |
| Earnings Per Share | $1.79 | $1.84 | $1.95 | $2.28 | $1.04 | $1.86 |
| EPS Growth | n/a | 2.79% | 5.98% | 16.92% | -54.39% | 78.85% |
| Diluted Shares (MM) | 395 | 388 | 402 | 434 | 425 | 420 |
| Free Cash Flow (MM) | $863 | $750 | $695 | $442 | $734 | $749 |
| Capital Expenditures (MM) | $470 | $435 | $419 | $689 | $679 | $669 |
| Current Ratio | 1.56 | 1.3 | 2.39 | 1.98 | 1.82 | 1.59 |
Yum China has rapidly growing revenues and increasing reinvestment in the business and wider gross margins than its peer group. Additionally, the company's financial statements display positive EPS growth and a decent current ratio of 1.59. However, the firm has weak operating margins with a stable trend. Finally, we note that Yum China has positive cash flows.
