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Strategies & Market Trends : Free Cash Flow as Value Criterion -- Ignore unavailable to you. Want to Upgrade?

To: HeyRainier who wrote (167)	11/6/1997 7:48:00 PM
From: jbe	Respond to of 253

Rainier, you write: 'As Wall Street is a discounting mechanism, I think the case for poor historical cash flow might become nullified when future expectations come into play.' I don't want to repeat myself, so you might want to check an earlier post of mine (No. 7). Briefly, my free cash flow gurus select stocks for their portfolio on the basis of low debt, low price/free cash flow ratios, and an 8-year history of steadily increasing free cash flow. They of course have a model for predicting future discounted free cash flow, which in turn is based on the presupposition that the past free cash flow growth rate of the company in question will remain more or less the same in the future. I don't see how Wall Street's "discounting mechanism" can project any future free cash flow for a company that has consistently had negative free cash flow. (Are you listening, Andrew? O, defender of MCD?)) It can only be guesswork. Wall Street can guess right; it can also guess wrong. It seems to me it is safer to bet on a company that already has a strong, consistent record in producing FCF. But I wish both you and QSound well!! jbe