• The First Cut
  • Stocks With Possible "Hidden" Earnings

    by John Bajkowski

    Stocks With Possible

    While most investors focus on earnings to measure company profitability and success, it can be insightful to see if cash flow generation corresponds with earnings. Earnings are calculated under the principles of accrual accounting, while cash flow measures the direct consumption and generation of cash. Earnings are influenced by factors such as depreciation and asset write-downs even if no cash was used or created in the process. The cash flow statement divides the uses and sources of cash into three primary segments: operating, investing, and financing cash flows. The operating segment measures cash generation and usage from day-to-day operations. The investing section captures investment and divesture in the long-term capital of the firm, while the financing segment examines how the company finances its capital (equity and debt) and how it rewards its shareholders through dividend payments.

    Over the long term, cash flow and earnings should move in line with each other, so weak earnings and strong cash flow may be a signal that earnings are temporarily depressed and due for a recovery. This issue’s First Cut looks for firms with a record of positive free cash flow that is currently greater than earnings and that are trading with low price-to-free-cash-flow ratios. Free cash flow is calculated by taking cash flow from operations and subtracting capital expenditures and dividends paid.

    The First Cut screen started with domestic, exchange-listed stocks with a minimum price of five dollars per share and market cap of at least $50 million. Financials were excluded. Stocks were required to have free cash flow greater than earnings for the most recent 12 months and latest fiscal year. The First Cut stocks also had positive free cash flow for each of the last five fiscal years and the most recent 12 months. As a screen for financial strength, the passing stocks have a ratio of total liabilities to assets below the norm for their industry. The relative strength index in the table reveals recent stock performance relative to the S&P 500. The 30 stocks with the lowest price-to-free-cash-flow-per-share ratio made the First Cut.

    Company (Exchange: Ticker) Price-to-
    Free-Cash-Flow
    Free
    Cash
    Flow
    EPS Free Cash
    Flow
    Grth Rate
    (3 Yr)
    (%)
    EPS
    Growth
    Rate
    (3 Yr)
    (%)
    Liab-to-
    Total-
    Assets
    (%)
    52-Wk
    Rel
    Strgth
    Index*
    (%)
    Share
    Price
    (7/17)
    ($)
     
     
    Latest Year  
    12 Mo Ago Latest 12 Mo  
    (X) (X) ($/Shr) ($/Shr) Description
    American Reprographics Co. (N: ARP) 3 7.5 2.66 0.57 29.8 -16.7 59.7 -37 7.99 document mgmt serv
    Acxiom Corporation (M: ACXM) 3.2 4.5 2.71 0.48 8.4 -11 62.9 3 8.72 interactive marketing servs
    EarthLink, Inc. (M: ELNK) 3.8 11.7 2.1 1.55 23.8 20.4 40.7 27 7.9 Internet serv provider
    Manpower Inc. (N: MAN) 4.2 17.2 10.2 1.83 69.5 -0.7 60 2 42.75 employment serv
    EMCOR Group, Inc. (N: EME) 4.7 7.6 4.23 2.82 28.5 42.8 62.4 0 19.94 construction & facilities serv
    Fair Isaac Corporation (N: FIC) 4.7 8.4 3.16 1.5 0.9 -4.1 55.6 -6 14.98 analytical & mgmt servs
    GP Strategies Corporation (N: GPX) 4.7 11 1.45 0.39 9.1 1.5 30.4 -10 6.75 custom training solutions
    LHC Group, Inc. (M: LHCG) 5.6 22.4 4.41 2.02 142.9 37.6 28 32 24.63 post-acute healthcare servs
    Ceradyne, Inc. (M: CRDN) 5.8 9.1 3.1 2.82 371.4 29.1 25.5 -43 17.95 technical ceramic prods
    Alpha Natural Resources (N: ANR) 6 68.6 4.8 2.55 110.3 82.2 51.1 -60 28.61 coal supplier in Appalachia
    Manhattan Associates, Inc. (M: MANH) 6 19.5 2.68 0.64 39.6 13.7 31.9 -14 16.09 supply chain software
    U.S. Physical Therapy, Inc. (M: USPH) 6.6 14.9 2.21 0.86 23.6 3 31 16 14.54 outpatient physical therapy
    CenturyTel, Inc. (N: CTL) 7 5.9 4.28 3.41 0 12.7 60 11 29.8 communications servs
    Warwick Valley Telephone (M: WWVY) 7.2 12.6 1.65 1.26 5.7 5.6 36.6 44 11.85 communications servs
    Forest Laboratories, Inc. (N: FRX) 7.3 9.5 3.39 2.52 30.6 6.6 20.8 -8 24.75 branded ethical drugs
    American Italian Pasta Co. (M: AIPC) 7.5 nmf 4.06 2.86 46.7 29.7 51.5 267 30.56 dry pasta producer
    Harte-Hanks, Inc. (N: HHS) 7.6 9.2 1.24 0.89 0.8 -9.9 59.9 13 9.42 direct marketing servs
    Perficient, Inc. (M: PRFT) 8.3 11 0.87 0.26 38.9 5.6 7.7 -7 7.21 info tech consulting firm
    Compuware Corporation (M: CPWR) 8.4 11.8 0.85 0.56 14.9 14.1 53 -2 7.18 software for info tech
    AmSurg Corp. (M: AMSG) 8.6 13.5 2.44 1.58 18.9 9.8 50.5 5 21.1 ambulatory surgery centers
    Granite Construction Inc. (N: GVA) 8.6 18.7 4.03 3.11 79.5 16.7 53.2 29 34.61 heavy civil contractor
    American Medical Alert (M: AMAC) 8.9 38.5 0.63 0.18 50.6 14.5 25.2 34 5.6 healthcare monitor servs
    Hanger Orthopedic Group (N: HGR) 9.2 21.7 1.34 0.73 18 13.7 65.9 7 12.28 orthotic & prosthetic centers
    QLogic Corporation (M: QLGC) 9.3 11.4 1.49 0.84 64.9 6.7 19.7 11 13.82 networking solutions
    Comcast Corporation (M: CMCSA) 9.4 30.1 1.51 0.88 68.5 51 63.7 -4 14.15 cable services
    MicroStrategy Incorporated (M: MSTR) 9.4 10.2 5.71 3.38 -4.1 -7.3 47.2 13 53.95 business intelligence software
    eResearch Technology, Inc. (M: ERES) 9.7 32.3 0.6 0.41 43.4 18.3 17.7 -40 5.8 centralized EKG servs
    Timberland Company, The (N: TBL) 9.8 14.3 1.41 0.7 -2.5 -35 24.6 20 13.81 footwear, apparel & accessories
    Syniverse Holdings, Inc. (N: SVR) 9.9 11.1 1.73 1.16 14.1 133.8 54 49 17.2 wireless serv enabler
    Barrett Business Services (M: BBSI) 10 19.7 1.05 0.26 -15 -22.6 38.7 33 10.52 human resource mgmt servs
    John Bajkowski is president of AAII.


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