RE: Free cashflow & the ECM sector.
Larry, I was able to check out the free cashflow situation in a handful of representative companies, and it was an eye-opener!
BHE and Plexus (which I own) continue to have excellent free cashflow, with price/fcf ratios of 18.09 and 18.34 respectively (numbers from MarketGuide). Sanmina has a price/fcf ratio of 38.24, which is about the industry average of 38.94, which in turn is comfortably below the S&P average (42.04).
Given the historically good showing of the ECM sector in this regard, I was therefore surprised -- and shocked -- to find that SCI had developed negative cash flow and a negative (-24.) price/fcf ratio.
Well, I was even more shocked to see that Jabil and Solectron had departed even further from the path of financial virtue! Jabil has a price/fcf ratio of -38.24, and Solectron's is now -43.34!!
That's incredibly low. You never see SUCH low ratios even among the big boys in the most capital-intensive industries, like iron & steel.
What's going on here? A battle of the titans (or soon to be dinosaurs) for market share? I wonder whether it is prudent to expand that much, when your profit margin is that slim. Suppose you miscalculate? These guys seem to have no fat left on their bones to withstand an unexpected famine.
And David -- hate to say it, but after Oxford Health I take optimistic projections by management with several grains of salt.
In your opinion, are Plexus and BHE going to be left behind in the dust, because they are watching their pennies?
Thanks for your responses, and am looking forward to some more.
jbe |
