John,
because of the less-attractive balance sheet and cash flow
for CHB
You see that your negative cash flow is the result of working capital changes in the midst of explosive growth, no? Personally, with companies growing so quickly and experiencing big jumps in sales, I don't punish cash flow with working capital changes, since that negative disappears when the growth becomes less aggressive. CHB is just funding its growth with its cash flow and a little bit of debt added on to a balance sheet that had been pristine and underleveraged. William Young is supposed to be a very good manager who is not overaggressive financially, so I admit I am putting some faith in this.
Too, with the "negative net tangible assets," this is an improper use of this measure IMO. If a company has net negative tangible assets after a series of goodwill-producing acquisitions (as CHB has done to get into retail and certain production niches), but manageable debt, then I fail to see where this is a negative. Maybe it would come into play if the business were being liquidated, but not for an ongoing concern. If anything, as long as earnings are strong and the acquisitions accretive, it shows there is some value in the branding/location/distribution that is being accounted for as goodwill.
Mike |
