Joshua Heller's  Instablog

Joshua Heller
Send Message
Stock investors are always asking what is the catalyst for value to be realized? I originally thought like this which lead me to take too much risk. I now focus on being patient, controlling risk, and minimizing permanent capital losses. These steps have lead to significantly better returns.... More
  • Buy Xyratex (XRTX) - no debt, 90M in cash, 427M market cap 0 comments
    Jan 10, 2011 9:42 PM | about stocks: XRTX

    Xyratex (NASDAQ:XRTX) closed at $14.10 on January 10th, 2011.  Over the past year, shares have traded in a range of $10.50 to $20.45.

    XRTX reported its 4th Quarter and fiscal year results on January 6th.

    Free Cash Flow generation:  During the fiscal year, XRTX generated 40M in free cash flow (60M Operating, 20M capital spending).  As XRTX sales are cyclical, account receivables and inventories increased by 170M while account payables increased by 59M.  To ignore the effects of changes in working capital, another way to look at FCF is to calculate using Net Income + Depreciation - Capital Expenditures.  Using this calculation, FCF is 137M (139M + 18M - 20M). 

    Valuation: At today's closing price, XRTX current market cap is 427M.  The company has 90M in cash and no debt.  Using the two FCF valuations above, the market is valuing XRTX between 2.460 and 8.425.  With 8.5x valuation at the top end of the range, XRTX could move to 10x without being expensive.  Since XRTX is cyclical, valuation should not exceed 10x. 

    XRTX has a strong margin of safety with a current valuation of 8.5x the high end of FCF generation.  The stock could increase significantly as cash generation increases.  

    Long XRTX (I am looking for a double)

    Stocks: XRTX
Back To Joshua Heller's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers


  • If $PXD makes 30% IRR on current strip (per release last night) why not hedge new production going forward?
    Jan 6, 2016
  • $CBS
    Oct 27, 2014
  • $HNRG closes Vectron fuels acqusition. more details to be provided on 9/2 and webcast on 9/4
    Sep 2, 2014
More »

Latest Comments

Most Commented
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.