Eight Stocks With Low Free Cash Flow Multiples (ADS, PLCE, DRIV, HTRN, HEI, HEW, KOSP, NVR)

In November we profiled a value stock screen from the Wall Street Journal written by Jack Hough. The point of the screen was to find attractive companies that had low price-to-free cash flow multiples. In last Thursday’s Wall Street Journal, Hough followed up on the screen and reported that the seven companies it found have since gained an average of 12.5%, versus 5.2% for the S&P. (WSJ articles: sub. req.)

Hough also ran a new screen and offered eight companies that might be worth further research:

The eight companies below have P/FCF ratios that are below 15 and in the bottom 25% for their industries. They’ve increased their sales by at least 15% a year, on average, over the past three years, and at a faster rate in the past year than over the past three. Each company has a debt/capital ratio of below 0.5, has posted sales of at least $200 million over the past year and is projected by analysts to boost earnings by at least 12% annually over the next five years.

Survivors of the screen include (ticker, P/FCF, industry):

* Alliance Data Systems (ADS, 11.7, information services)
* Children’s Place Retail Stores (PLCE, 8.3, apparel)
* Digital River (DRIV, 11.1, internet solutions)
* HealthTronics (HTRN, 11.2, medical products/services)
* Heico (HEI, 10.5, defense products)
* Hewitt Associates (HEW, 13.8, human resources services)
* Kos Pharmaceuticals (KOSP, 12.5, drugs)
* NVR (NVR, 9.4, home builder)

Note: data as of 2/17/06

This is just a starting point for your research and we recommend digging deeper if any of these companies appeal to you.