Hi Mike,
One component of the cash flow is working capital management. A quick glance at SEBL's balance sheet shows a lot of receivables, but very few payables. So, their cash flow "investment" from a working capital management perspective is not very good.
But, while this may be bad from a numbers perspective, I don't see a big problem when looking at the big picture. DSO's have been going down, and I have no problem with receivables being lofty if it gets the product in the hands of end users which will build in switching costs. In fact, I expect this. So, this is where some qualitative analysis and feel for the business helps, but not from a CAP perspective.
Once SEBL's growth rate slows a little bit, and their fixed capital investment remains low relative to growth (b/c they are depreciating faster than building new fixed assets) and working capital management "normalizes", then it may be the best time to see what is implied by the current market price using a really sophisticated type of cash flow analysis. This is just a hunch though. I think SEBL will be drowned in cash flow. A great sign.
I did receive some attention from a consulting firm in Europe that wanted to give me their SVA software to test out. But, I have not heard back since. I think Europeans go on long vacations in the Summer, so hopefully I hear back soon.
Best,
J |
