A Healthy Net-Net for 3.9x FCF
FCF was also higher last year than the 5-year average with consistent 24% margins.
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Today’s stock is unbelievably cheap, for a healthy, cash-generative business.
Here are the valuation ratios:
NCAV Ratio = 0.6
TBV Ratio = 0.5
EV/5Y FCF Ratio = 8
P/5Y FCF Ratio = 5.5
EV/FCF Ratio = 5.5
P/FCF Ratio = 3.9
Over the last 5 years the business hasn’t failed to generate positive FCF and last year’s figure is 16% higher than the 5Y average.
In fact, it’s a net-net.
There were some decisions to be made when figuring out the valuation here.
For example, some of the cash is restricted.
If I bought this business in the real-world, I’d include this in the EV calculation because the cash is available to the operating business.
(It’s just tied to a specific project).
It also had some debt-like lease obligations that I would want to include when assessing FCF and EV, and I had to manually add back the interest costs.
Even with all my pedantic ‘real-world’ owner adjustments, the business remains shockingly cheap.
At this price, the business is available for less than the value of its total cash and outstanding invoices.
This means that the inventory and actual operating business, with all its future cash-generation, is being given away for nothing.
The market is telling us that this business is a value-trap that will soon burn all its assets and die.
The latest reports show a healthy, cash-generative business primed for continued operations for the foreseeable future.
Let’s take a closer look…