Novell (NOVL) dirt cheap, good buy? Message Board

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Technology Stocks : Novell (NOVL) dirt cheap, good buy?

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To: Elmo Gregory who wrote (6073)	12/23/1996 7:45:00 PM
From: E_K_S	of 42771

Hi Elmo: The Deloitte & Touche Report - my thoughts...... Goto page 17 and look at the free flow cash analysis First Notice that the free flow cash flow has remained positive over the life of the company. Second, notice that the accumulated depreciation is running almost 300 million per year. This is a book entry and reduces reported earnings but impacts the free flow cash flow numbers. Third, calculate the free flow cash flow per share. This number reflects the real cash earned per share after direct expenses excluding depreciation, taxes and capital expenditures. Here are the results.... 1994 - $1.48 per share 1995 - $1.44 per share 1996 - (as of July 27, 1996) $1.29 per share 1996 adjusted to reflect annual period...<eks estimate> $1.72!! Now I know where Novell is going to get the money to finance their building. They will finance it out of their free flow cash flow. This is a very good number and continues positive and is growing! Example - I was buying WDC at $17.00 last September 1995 when their free flow cash flow was just under $3.00. Although the company was posting lousy earnings, most of the additional revenue was paying off new building depreciation. The company turned the corner and in the last 18 months stock hit a high of $60.00. You see the free flow cash flow represents the cash in after direct expenses but BEFORE depreciation adjustments. Novell and WDC are different companies but the fundamental analysis is the same! Novell has excellent Free flow cash flow as this money goes back into building the asset base. If all their buildings and equipment were expensed and paid off, Novell would report $1.79 for the year...that's $35 7/8 at a PE of 20. In Summary, if Novell can continue to grow their free flow cash flow (ie. the money machine), continue to expand their asset base, (IMO) the earnings will follow. No other compnay in the Deloitte & Touche peer review has the same price to free flow cash flow as Novell. So either, (1) the market does not think that Novell can keep sales at these levels or (2) the stock is very undervalued. What do you think? EKS

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