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

To: Kapusta Kid who wrote (38218)	6/8/2010 3:26:59 PM
From: Spekulatius	Respond to of 78702

Pete, yes the changes in the working capital should be taken out of the FCF calculation. To be fair, i do not use FCF as much as I used to. i sort of became a FCF guru about 8 years ago but realized that a lot of stocks where management does not emphasize FCF too much tend to do very well. it is simply a matter of capital allocation - if management spends it's Dollars well, then re-investment will make the company valuable. Emphasize into FCF will get you in a lot of value traps and shrinking business. FCF yield does have some value for steady business (Food, media) and the lack there off can expose poor capital allocators (my favorite name here used to be CHK in the E&P business). the other thing - always take it with a grain of salt if the FCF yield is larger than the earning yield. This can happen for a short time (if the company has excess assets that it "burns off" via depreciation) or due to changes in working capital but it is almost never sustainable. Going back tot he EMCOR example - there is nothing worth with a business that can grow 20% and still have a little FCF left - I'd rather have that than a business that shrinks 20% and has am extremely high (but unsustainable) FCF yield.