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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: hueyone who wrote (43706)6/20/2001 10:46:52 PM
From: Mike Buckley  Read Replies (1) of 54805
 
Huey,

Sorry that I missed your PS about the Siebel valuation.

If you can answer a couple of questions without taking the time to finish your study of the topic, I'd appreciate it. If not, I understand.

What metric(s) would you use for determining the fair value of a stock relative to its adjusted free cash flow?

Considering that employees are at the core of a company's operations, what is the basis for excluding the cash flow issues directly related to acquiring the employees when trying to arrive at free cash flow generated by operations?

If I remember correctly, you referenced the annual doubling of adjusted free cash flow per share in the context that it would be very unusual to sustain. But I'm not sure it would be. (I'm also not sure it wouldn't be difficult.) For instance, Siebel's unadjusted free cash flow in 1998, 1999, and 2000 was $46 million, $44 million, and $276 million, respectively. If unadjusted free cash flow can grow in such geometric porportions, can't adjusted free cash flow do the same? I'm not familiar enough with the factors that can most likely affect free cash flow or the magnitude of change free cash flow can typically enjoy as a company transitions from the bowling alley through the tornado and onto Main Street. So, I'm wondering if you have a feel for it that might be helpful.

--Mike Buckley
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