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Strategies & Market Trends : Value Investing

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To: Q. who wrote (12348)	4/16/2001 12:10:31 AM
From: James Clarke	Read Replies (1) of 78822

<<In my first attempt, I adjusted the criteria till it yielded a list of only 16 stocks, and in that list I found FLXS (a furniture maker). FLXS trades for 1.28 X net current assets. Thus, its p/e of 7.2 adjusts downward to 7.2 * (1-1/1.28) = 7.2 * 0.22 = 1.6, which is one of the lowest values I can find for a company that looks better than what Paul Senior calls a "cigar butt". (The stock is thinly traded, though.)>> NOOOOOOOOOOO!!!!!!!!!!! No. No. No. While expressing no thought whatsover on the investment merit of FLXS, I am just going to comment on the logic of your analysis and emphatically say its wrong. That net working capital is the money invested in the business. If you take that money out, you don't have a business. The denominator of your P/E multiple is the earnings of the business. You can EITHER liquidate it or get the earnings from it. Your analysis says you can do both. That dog don't hunt. jjc

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