Jim, re. LII's financial statements, you asked why the cash flow from operations has declined in consecutive years. You probably saw the table on page F-13 in the S-1.
edgar-online.com
I don't have a complete answer for you, but I can offer a couple of ideas. Their business model hasn't remained constant.
They've been transitioning from being just a capital goods supplier to also owning the downstream retail channel. The latter is being accomplished by buying up the mom and pop heating/a.c shops around the country. As a result of this growth, their inventory and A/R have been growing, so that eats into their cash flow from operations.
I don't know if that fully explains what you've observed, but I assume it must be a big part of the answer. I suppose it is also possible that there is some kind of disguised deterioration in the underlying capital goods business, as there has been in the retail chain that they are acquiring, although in reading the latest 424B3 prospectus I didn't notice any indication of such a thing.
I am mindful that the unusual scheme for growing the business probably provides the company various opportunities to be creative with the financial reporting. I have no way of knowing whether they are doing that, but just to be safe, in buying the stock I didn't give much weight to the earnings numbers or the p/e.
If you have other thoughts on this, I'd like to hear them. |
