Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Q. who wrote (12348)	4/16/2001 12:10:31 AM
From: James Clarke	Read Replies (1) \| Respond to of 78822

<<In my first attempt, I adjusted the criteria till it yielded a list of only 16 stocks, and in that list I found FLXS (a furniture maker). FLXS trades for 1.28 X net current assets. Thus, its p/e of 7.2 adjusts downward to 7.2 * (1-1/1.28) = 7.2 * 0.22 = 1.6, which is one of the lowest values I can find for a company that looks better than what Paul Senior calls a "cigar butt". (The stock is thinly traded, though.)>> NOOOOOOOOOOO!!!!!!!!!!! No. No. No. While expressing no thought whatsover on the investment merit of FLXS, I am just going to comment on the logic of your analysis and emphatically say its wrong. That net working capital is the money invested in the business. If you take that money out, you don't have a business. The denominator of your P/E multiple is the earnings of the business. You can EITHER liquidate it or get the earnings from it. Your analysis says you can do both. That dog don't hunt. jjc

To: Q. who wrote (12348)	4/17/2001 5:33:18 AM
From: Bob Rudd	Respond to of 78822

On subtracting 'excess' net current assets being equivalent to subtracting cash to get an adjusted PE more reflective of the true value: I would think it would depend on the quality of those assets. Cisco announced today it was writing off 1.5 Billion in inventory, sometimes Accounts receiveable are difficult to collect. This is not to say this approach doesn't have merit, just that cash ain't trash and sometimes working capital assets are. That said, FLXS trades at EV/EBITDA of 4 which is indeed cheap. One concern is that SG&A seems to be rising despite flat sales and cash is falling, again despite flat sales, usually conducive to building cash. They just warned so looking at end user markets may give a clue on whether they burn or earn going forward. I like the exposure to the furniture biz in that as mortgage refinancing goes forward, I would think furniture would be a beneficiary.