False Profit

42 Comments

    • ON: Wed Sep 24th 18:12 PM
      Commented on:
      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.
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    • ON: Thu Sep 18th 08:43 AM
      Commented on:
      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.
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    • ON: Thu Sep 18th 08:43 AM
      Commented on:
      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.
      View article »
    • ON: Tue Sep 9th 08:28 AM
      Commented on:
      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.
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    • ON: Wed Sep 3rd 08:16 AM
      Commented on:
      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.
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    • ON: Wed Sep 3rd 08:16 AM
      Commented on:
      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.
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    • ON: Mon Aug 18th 08:44 AM
      Commented on:
      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.
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    • ON: Tue Aug 12th 09:04 AM
      Commented on:
      Steak N Shake's New Direction Is Terrific News for Shareholders
      For the trailing twelve months, SNS's free cash flow is about zero. So your projections look like a pipe dream. The company is raising cash by selling and leasing back properties, which provides a one-time boost to cash flow, but results in a higher operating expense on a continuing basis. The reality is that this is a company that is generating losses, showing decreasing revenue and has a fair amount of debt - usually the recipe for bankruptcy.
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    • ON: Fri Aug 8th 13:05 PM
      Commented on:
      Steak n Shake: Watching and Waiting as Biglari Names Himself CEO
      The company is unprofitable and burning cash with no sign of a turnaround. Bankruptcy is a possibility. Be generous and put a 0.5x multiple on revs, and this is a $5 stock.
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    • ON: Tue Aug 5th 07:59 AM
      Commented on:
      Electronic Arts: Growth is Coming
      The stock is at 27x forward proforma EPS, which excludes a significant amount of stock compensation. This hardly looks cheap. Besides, the company is hardly generating any cash, indicating poor earnings quality.
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    • ON: Thu Jul 31st 16:04 PM
      Commented on:
      Genesee & Wyoming: A Great Buy at Current Lows
      I don't see why it would be a buy at 25x EPS. And look at their free cash flow - it is negative, indicating poor earnings quality.
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    • ON: Tue Jul 29th 10:18 AM
      Commented on:
      Can Iron Mountain Keep Investors Safe from a Recession?
      Well, the stock is at 35x EPS; the company hardly generates any cash and is growing organically in the single digits. I'd say it's hugely overvalued at the current price.
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    • ON: Wed Jul 16th 09:30 AM
      Commented on:
      Is Valero a Better Buy than Exxon Mobil?
      Agree on the margin/volume concerns, but at 7x EPS, one is presumably being compensated for this risk, with potential upside from higher margins if crude oil falls.
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    • ON: Wed Jul 16th 09:27 AM
      Commented on:
      Autoliv: Cashing in on Safety
      The auto industry downturn is obviously a negative, but the stock is at a single digit multiple of EPS and free cash flow. Stock buybacks, especially at this level, are tremendously accretive. I can see more than 50% upside to the stock.
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    • ON: Thu Jul 10th 09:28 AM
      Commented on:
      Ensco International and Oilsands Quest: Two Diverse Energy Bets
      Agree, ESV is good value at this price. If you'd like to hedge it, HP looks overvalued at 17x EPS and negative free cash flow.
      View article »
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