In this article, we’ll be summarizing a bullish thesis posted on VIC regarding Yum China Holdings in late July when YUMC was trading at $30.40. Currently, YUMC stock is trading at $49.30, which is near its 52-week high of $52. So, YUMC stock has gained over 60% since the publication of this thesis. Currently, YUMC stock’s PE ratio is 21.94 based on GAAP earnings, dipping to 21.53 on non-GAAP figures.
The iconic yellow and red roof of a franchise restaurant in the bustling streets of a city.
Published in July 2024, the VIC thesis on Yum China Holdings Inc. (YUMC) offers a bullish perspective backed by multiple tailwinds. Operating multiple popular brands, including KFC, Pizza Hut, and Lavazza, all throughout China, Yum China has become a juggernaut in its niche. The thesis contends that Yum China’s robust fundamentals and expansion plan will propel future development despite macroeconomic worries and geopolitical events influencing the company.
Yum China has steadily expanded its presence, With KFC holding a commanding 5% market share, and has been progressively becoming more and more visible in both better and lower-grade cities. Mini outlets are part of KFC’s approach to boosting the density and channel franchising to get to far-off sites. Furthermore, KFC’s strong loyalty program, with 450 million members, supports a strong income flow, which has driven sales growth and higher transaction frequency.
Pizza Hut also makes a lot of contributions; using delivery-oriented strategies helps it grow even into tier-one cities. Pizza Hut has changed its menu to boost sales, adding things including burgers and Lavazza coffee, which have proved popular even if its expansion has stalled.
From a financial standpoint, Yum China (YUMC) gains from a net cash position and has started significant buybacks and dividend hikes, using its robust cash reserves. According to the thesis, the company stock is undervalued on the back of its growth potential and strong cash flow production reflects its pricing below historical multiples. It forecasts that Yum China’s capacity to control growth expenses and use operational efficiency to increase profitability will lead to several expansions and long-term shareholder returns.
All in all, the VIC thesis holds that Yum China is a strong investment based on strategic expansion, a strong financial situation, and brand strength, especially if the market values it near historical multiples.
YUMC shares already returned more than 60% since the write-up. While acknowledging the potential of YUMC stock as an investment, we believe that some AI stocks hold greater promise for delivering greater returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than YUMC but that trades at less than 5 times its earnings check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.