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Five Cash Flow Kings For August 22
A company's net income and earnings per share can provide insight into its well being and progress over time. That's why these metrics get the headlines. However, there are times when a company's "bottom line" doesn't tell the whole story.
The problem with looking solely at a company's earnings number is that sometimes earnings are hurt by one-time events or depreciation, which can muddy the waters. That's where cash flow comes into play. The cash flow statement simply tracks where the company's money goes and may provide a clearer picture of its health. (For related reading, check out Fundamental Analysis: The Cash Flow Statement and The Essentials Of Cash Flow.)
The Basics of Cash Flow
Cash flow statements are no-nonsense. They depict money outflows and inflows and may be a better measure in determining whether the company has the money to cover the important things like its interest payments on a loan or if it has extra money it can spend on a share repurchase program.
Its also important to note that there are times when a company might currently be losing money in terms of its net income, but generating positive cash flow. Under some conditions such a company may be a good investment candidate. If the earnings do turn positive, other investors may start to take notice and the stock could take off. With all of that in mind, here are some companies that, in their most recently completed fiscal year, have generated positive operating cash flow despite reporting negative net income:
Cash Flow Kings
Explore the Isle of Capri
I like the casino business - I like it a lot. From a consumer standpoint, I like the lights, the noise, and the excitement. And as a former analyst and current journalist I like to think that I can appreciate the effort that goes into such an operation, and the money that can potentially be made.
That's why I think Isle of Capri deserves a look. Isle of Capri sports gaming facilities in Mississippi, Louisiana, and Missouri. And over the long run I think that the company can fare well given its centrally located properties.
Unfortunately, in the near term I'm not too bullish, and that's because of the sluggish economy and the consumer's apparent reluctance to spend money. Isle of Capri is coming off a rough quarter where it posted a loss of $1.66 per share. At present the company is expected to lose 32 cents a share in the current year, and to earn 8 cents a share the following, according to Yahoo Finance.
Insider Buying a Good Omen
The short term outlook isn't great, but I do feel that things will eventually turn. My optimism is bolstered by a form 4 report that says Isle of Capri's president and COO, Virginia McDowell, bought 10,000 shares recently. She purchased these shares for $4.67 on July 7, 2008, and if anyone is keeping track the 52-week low was $3.97 which occurred on July 3.
On top of McDowell's purchase, Isle's executive VP and CEO Perry James bought 40,000 shares on July 7 for $4.80. As of mid-day Friday August 22, Isle's stock was selling for around $6.60. (To learn more about keeping tabs on company insiders, read Delving Into Insider Investments.)
Bottom Line
There is an old adage: "It takes money to make money." Cash flow is the metric that lets you see how a company spends its cash, and where it is coming from. Sometimes a company looks sicklier than it actually is, and cash flow can help you discern if there is a turnaround opportunity in the works. Not all of the stocks we've looked at are guaranteed to see gains in share price, but having examined their cash flow, it's likely that we could be looking back at them in a year from now and wondering how Wall Street misread the true health of their earning potential.
For related reading, check out Analyze Cash Flow The Easy Way.
The problem with looking solely at a company's earnings number is that sometimes earnings are hurt by one-time events or depreciation, which can muddy the waters. That's where cash flow comes into play. The cash flow statement simply tracks where the company's money goes and may provide a clearer picture of its health. (For related reading, check out Fundamental Analysis: The Cash Flow Statement and The Essentials Of Cash Flow.)
The Basics of Cash Flow
Cash flow statements are no-nonsense. They depict money outflows and inflows and may be a better measure in determining whether the company has the money to cover the important things like its interest payments on a loan or if it has extra money it can spend on a share repurchase program.
Its also important to note that there are times when a company might currently be losing money in terms of its net income, but generating positive cash flow. Under some conditions such a company may be a good investment candidate. If the earnings do turn positive, other investors may start to take notice and the stock could take off. With all of that in mind, here are some companies that, in their most recently completed fiscal year, have generated positive operating cash flow despite reporting negative net income:
Cash Flow Kings
| Company | Market Cap | Operating Cash Flow |
|
Conseco (NYSE:CNO) |
$1.62B |
$449M |
|
HCP Inc. (NYSE:HCP) |
$8.51B |
$455M |
|
Isle of Capri (Nasdaq:ISLE) |
$205M |
$101M |
|
JDS Uniphase (Nasdaq:JDSU) |
$2.67B |
$211M |
|
Pacific Sunwear (Nasdaq:PSUN) |
$531M |
$124M |
| Data as of market close August 21, 2008 | ||
Explore the Isle of Capri
I like the casino business - I like it a lot. From a consumer standpoint, I like the lights, the noise, and the excitement. And as a former analyst and current journalist I like to think that I can appreciate the effort that goes into such an operation, and the money that can potentially be made.
Unfortunately, in the near term I'm not too bullish, and that's because of the sluggish economy and the consumer's apparent reluctance to spend money. Isle of Capri is coming off a rough quarter where it posted a loss of $1.66 per share. At present the company is expected to lose 32 cents a share in the current year, and to earn 8 cents a share the following, according to Yahoo Finance.
Insider Buying a Good Omen
The short term outlook isn't great, but I do feel that things will eventually turn. My optimism is bolstered by a form 4 report that says Isle of Capri's president and COO, Virginia McDowell, bought 10,000 shares recently. She purchased these shares for $4.67 on July 7, 2008, and if anyone is keeping track the 52-week low was $3.97 which occurred on July 3.
On top of McDowell's purchase, Isle's executive VP and CEO Perry James bought 40,000 shares on July 7 for $4.80. As of mid-day Friday August 22, Isle's stock was selling for around $6.60. (To learn more about keeping tabs on company insiders, read Delving Into Insider Investments.)
Bottom Line
There is an old adage: "It takes money to make money." Cash flow is the metric that lets you see how a company spends its cash, and where it is coming from. Sometimes a company looks sicklier than it actually is, and cash flow can help you discern if there is a turnaround opportunity in the works. Not all of the stocks we've looked at are guaranteed to see gains in share price, but having examined their cash flow, it's likely that we could be looking back at them in a year from now and wondering how Wall Street misread the true health of their earning potential.
For related reading, check out Analyze Cash Flow The Easy Way.
by
Glenn Curtis
Glenn Curtis started his career as an equity analyst at Cantone Research, a New Jersey-based regional brokerage firm. He has since worked as an equity analyst and a financial writer at a number of print/web publications and brokerage firms including Registered Representative Magazine, Advanced Trading Magazine, Worldlyinvestor.com, RealMoney.com, TheStreet.com and Prudential Securities. Curtis has also held Series 6,7,24 and 63 securities licenses.
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