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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Blue Voodoo who wrote (12202)	3/23/2001 8:09:32 AM
From: TimbaBear	Respond to of 78747

Blue Voodoo Took a look at CATS. I get a NetNet value of ~$1.34/share based on the data in the most recent 10Q I found at EDGAR(up from ~$.34/share on 10K), this is well below the current market price of $3.28/share. The Beta is 2.2 so the stock price of this company is over twice as volatile as the market. A brief look at their numbers from previous years(as reported in the recent 10K)indicates that they go into the red very quickly in slow business climates. However, they seem to be quite a bit more profitable for the same revenue dollar in the door than they were 4 years ago. Although you point out that they had some tax loss carryforwards from previous years, the profitability that I'm referring to is reflected in the much lower cost of goods sold. The company appears to be CFO and FCF positive on both the 10K and the 10Q(with data for 6 months since fiscal year end). Overall, since the price is well above the NetNet valuation and it has a very large Beta, I would say it does not hold the "margin of safety" referred to by Graham. However, if you take FCF and divide it by 6%(my approximation of stable risk-free rate of return), the FCF I derived from the data in the 10K would indicate a value of $4.35/share. I get a much higher valuation if I use the higher FCF indicated on the 10Q, but in this slowdown, I don't think it would be prudent to use the higher number as it is probably fleeting. The price to book is interesting in this company because tradition book value calculations are based on stockholder equity and stockholder equity was negative 2 years ago, was ~$10 million on the 10K, and went to ~$29 million 6 months later. This appears to be quite manic to me and confirms the extreme volatility of this company's price. As a long term value investor, I think I would like to see how the numbers look after this current downturn in business climate before committing any money to it. Timba