So you're saying that if they spend a buck of the retained $7 to buy a new factory, it would reduce the value of the company?
It seems to me that this issue is tied in to one's perception of the maturity and growth opportunity of the company. Obviously, if one felt that investing a dollar today was very likely to yield two dollars next year, the one would prefer the company with the *lesser* FCF, all else being equal. But then, all else is rarely equal.
To me, this is why FCF, for all that it has going for it in good solid financial terms, is no more than the tip of the iceberg in terms of valuing companies for LTB&H. After all, a company who was in its sunset years, but had a lock in that would give them say a couple of years of cash cow performance with no capital investment would look super in FCF terms, but you sure wouldn't want to hold it too long, would you? Conversely, a company with a long term patent lock on its market and a really solid market development plan might be investing ever free dollar in R&D and infrastructure development and yet be the best long term bet you can imagine.
There is no escaping the need for understanding ... fortunately or unfortunately, depending on one's ability and willingness to understand. |
