Ranjit Thomas

O'Reilly Automotive Continues to Shine

ORLY is trading at 20x EPS and has a consistent history of not generating any cash. Free cash flow for the last 12 months is negative, making the reported earnings suspect. This is one of the best shorts in this market.

Macy's Insecure Covenants: The Goodwill Trap

With reference to the last but one paragraph, earnings are after interest, pension expense and depreciation (which equates to capex). So it makes no sense to take earnings and then decrease it by these items to arrive at cash flow. In the last 12 months, M has generated $1.3Bn of free cash flow i.e. after paying interest and spending on capex. So the equity is trading at less than 3x FCF. It looks like there's enough margin even if the business deteriorates.

Clean Harbors: Buying Trash Stocks

Good luck buying a stock at 25x EPS when most others are trading at single digit PEs.

Flowers Foods Delivers Tasty Q3 Earnings

The company has generated zero free cash flow in the last twelve months, casting doubt on the quality of the reported earnings. And at 25x EPS, there is no room for error. This is a $20 stock at best.

Almost Family Reports Healthy Quarter

Take a look at the cash flow statement. Free cash flow is negative, with a huge increase in working capital, indicating the company is stretching to show earnings. And the stock trades at 25x EPS in this market. It's a $30 stock at best.

Why Expeditors International Fits My Needs

If a company trading at a 28x PE with 10% growth fits your needs, this is the stock for you!

Equinix 3Q Results: Vade Retro, Recession

EQIX is one of the few grossly overvalued stocks in this market. It hardly generates any profits, burns a huge amount of cash, hands out a liberal amount of stock and options to its executives, and trades at 4x revenues. The stock is essentially worthless, in my opinion, and one day when they can no longer raise any more debt, will have to file for bankruptcy. Until then, management will give rosy projections and merrily sell their stock to unsuspecting investors who evaluate it on non traditional metrics like proforma EBITDA.

Equinix 3Q Results: Vade Retro, Recession

EQIX is one of the few grossly overvalued stocks in this market. It hardly generates any profits, burns a huge amount of cash, hands out a liberal amount of stock and options to its executives, and trades at 4x revenues. The stock is essentially worthless, in my opinion, and one day when they can no longer raise any more debt, will have to file for bankruptcy. Until then, management will give rosy projections and merrily sell their stock to unsuspecting investors who evaluate it on non traditional metrics like proforma EBITDA.

Neogen Corporation: An Organic Play on Globalization

The macroeconomic analysis is all well and good, but perhaps you should also look at the valuation? The stock is trading at > 30x '08 EPS, most of the growth has come from acquisitions, and the co. has not generated any cash in the last 12 months. For a co. like this with poor earnings quality and zero free cash flow, I don't see why anyone would pay more than a 15x multiple. This looks like a $15 stock to me.

CKE Restaurants: On a Roll in Tough Economic Environment

Don't you think it was curious that they had a big drop in interest expense even though the debt level is up? The interest expense amounts to a 2% interest rate on their outstanding debt, which is abnormally low. The explanation can be found in their 10Q. The co. recognized a non-cash gain on interest rate swaps of $2Mn this quarter, which contributed all of the "beat". They had a similar situation last quarter too. In the past, when this item was a loss, the co. was quick to point it out. Now when it's a gain, they quietly sneak it in, and gullible investors lap it up.

CKE Restaurants: On a Roll in Tough Economic Environment

Don't you think it was curious that they had a big drop in interest expense even though the debt level is up? The interest expense amounts to a 2% interest rate on their outstanding debt, which is abnormally low. The explanation can be found in their 10Q. The co. recognized a non-cash gain on interest rate swaps of $2Mn this quarter, which contributed all of the "beat". They had a similar situation last quarter too. In the past, when this item was a loss, the co. was quick to point it out. Now when it's a gain, they quietly sneak it in, and gullible investors lap it up.

Cooper Companies: In-line for '08, Positioned for Asian Growth

Perhaps you didn't notice that the co. used an unusually low tax rate of 4% in their proforma figures for this quarter to arrive at a 67c profit. Using a normal 20% tax rate, EPS would have been 55c - a big miss from the 65c expectation. The company's earnings quality is poor with constant proforma exclusions for restructuring costs and the like. In fact, free cash flow over the last twelve months has been negative.

Hill International: A Play on Global Infrastructure Growth

The company is trading at more than 30x EPS and 240x trailing FCF. Next year's estimates look like a pipe dream. A rich valuation and poor cash generation looks like a recipe for a disaster - this is an ideal short.

Hill International: A Play on Global Infrastructure Growth

The company is trading at more than 30x EPS and 240x trailing FCF. Next year's estimates look like a pipe dream. A rich valuation and poor cash generation looks like a recipe for a disaster - this is an ideal short.

Corrections Corp: Go Directly to Jail, Do Not Pass Go, Do Collect Big Returns

This stock is trading at 22x EPS, and generating no cash. Free cash flow has been consistently negative, and getting worse. If anything, this looks like a good short to me.