YUM China Holdings Inc (NYSE:YUMC) Passes the Caviar Cruise Stock Screen

The Caviar Cruise stock screening method is a structured way to find good investments. This plan concentrates on firms showing steady revenue and profit increases, high returns on invested capital, good cash flow production, and acceptable debt amounts. Investors using this method look for businesses with lasting competitive strengths that can provide steady long-term results, focusing on financial soundness and operational quality instead of short-term market changes.

YUM China Holdings Inc (NYSE:YUMC) appears as a notable option when assessed using the Caviar Cruise standards. As the only licensee of Yum! Brands in mainland China, the company runs KFC, Pizza Hut, and Taco Bell restaurants along with local brands like Huang Ji Huang and Little Sheep. This varied collection of brands places YUMC where Western fast-food appeal meets China's developing consumer market.

Financial Results and Growth Measures

The Caviar Cruise method needs firms to show steady growth, with both revenue and EBIT having at least a 5% compound annual growth rate over five years. YUMC easily meets these requirements:

• Revenue growth (5Y CAGR): 7.85%
• EBIT growth (5Y CAGR): 6.49%

Significantly, the screening method states that EBIT growth should be faster than revenue growth, suggesting better operational effectiveness and possible pricing strength. Although YUMC's EBIT growth is a bit lower than its revenue growth, the company keeps up good increases in both measures, showing its capacity to grow operations throughout China's different markets.

Profitability and Use of Capital

Return on invested capital is a central measure for investors, showing how well management uses shareholder money. The Caviar Cruise screen has a high standard with a needed ROIC above 15%. YUMC produces notable outcomes here:

• ROIC (excluding cash, goodwill, and intangibles): 20.13%

This high return shows YUMC's capacity to create large profits from its invested capital, doing better than many competitors. The company's large restaurant system and brand awareness create important economies of scale, helping these solid returns.

Financial Soundness and Cash Flow

This investing style focuses on financial steadiness, with specific look at debt levels compared to cash flow production. The Caviar Cruise method assesses this using the debt-to-free-cash-flow ratio, favoring firms that could in theory pay all debt in five years with current cash flow. YUMC shows notable strength here:

• Debt-to-Free Cash Flow ratio: 0.06
• This shows the company could pay back its full debt in about 3 weeks using current cash flow

The company also shows high-quality earnings conversion, with a five-year average profit quality of 94%. This measure compares free cash flow to net income, indicating that YUMC changes almost all accounting profits into real cash—a main sign of earnings quality and financial dependability.

Fundamental Review Summary

According to the detailed fundamental review, YUMC gets an overall score of 6 out of 10 compared to industry competitors. The review points out several main strong points:

• Solid financial health with very good solvency measures
• Careful debt management with little leverage
• Steady profitability with positive earnings and cash flow over five years
• Fair valuation compared to industry averages
• Increasing growth predictions for both revenue and earnings

The report mentions that while YUMC's profitability measures are typical within the competitive restaurants industry, the company's financial stability and growth potential offer an interesting profile for investors looking for quality traits.

Investment Points

Beyond the numbers, investors usually think about several non-financial factors that match YUMC's situation:

The company gains from China's continuing urbanization and rising disposable incomes, offering a long-term growth benefit. Its mixed collection of global and local brands creates diversification advantages and local market connection. YUMC's large physical presence across China is a significant competitive barrier that would be hard for new competitors to copy. The company shows ability to adjust to local preferences while keeping global brand standards.

Looking at Comparable Options

For investors wanting to find other firms that satisfy the Caviar Cruise quality standards, the full screen results offer more investment ideas that share similar financial traits.

YUM China Holdings presents an interesting case for investors looking for involvement in China's consumer growth narrative. The company meets or passes most Caviar Cruise standards, especially doing well in capital effectiveness and financial soundness. While dealing with the usual difficulties of the restaurant industry, YUMC's size, brand collection, and financial control place it as an option deserving more study for long-term investment portfolios.

Disclaimer: This review is for information only and is not investment advice. Investors should do their own research and talk to financial advisors before making investment choices.