All Talk, No Action

Earlier this year the market hung up on Talk America (Nasdaq: TALK  ) . That was a shame because the provider of bundled local and long-distance calling services once looked so promising after earning $2.75 a share last year with free cash flow trickling in to the tune of just more than $2 a stub.

However, fundamentals can ring up a pretty mean reality call. Last night the company posted results that seem decent on many fronts. Its bundled accounts grew past 650,000 as Talk America's revenues climbed 23% higher. The company is using its free cash flow to aggressively pay down its debt. Yet the bottom line is that earnings per share fell from $0.37 to $0.30. Remember that $2.75 mark in annual profits from last year? Yes, that sum was artificially sweetened by a deferred tax benefit, but even without that break, the showing would have been higher than the $1.18 to $1.25 a share that it is projecting to earn this year.

Adding more salt in those wounds was the recent network unbundling hiccup that creates pricing uncertainty for the company. However, it's worth noting that the company has stuck to the same fiscal 2004 profit guidance over the past three quarters even as the share price has deteriorated. You can pick up shares of Talk America for just a bit more than five times this year's earnings guidance. That's not too shabby, accepting the fact that the multiple can widen if the uncertainties spell even lower earnings come 2005.

Thankfully, our own Hidden Gems newsletter recommended selling the stock earlier this year at a higher price than it is fetching these days. That's not much of a consolation, I know, given the fact that the shares surrendered a 21% hit from the time between Tom Gardner's buy recommendation last summer and when it was ultimately unloaded in March.

However, three of Tom's next four monthly selections -- Mine Safety (NYSE: MSA  ) , Middleby (Nasdaq: MIDD  ) , and FARO Technologies (Nasdaq: FARO  ) -- have more than doubled since being singled out. The fourth one wasn't exactly a slouch as Hooker Furniture (Nasdaq: HOFT  ) is trading 92% higher today.

So Talk America's slide can be taken in stride as Tom's newsletter picks have averaged gains of 34% while the S&P 500's average improvement has been a more modest 3%. Mining for Hidden Gems is about digging for a handful of promising jewels -- not just one.

Are you drawn to companies with single-digit earnings and cash flow multiples? Do you like companies in turnaround situations or asset-rich operations trading for little more than enterprise value? If so, yes, you are a value investor. Want to learn about more dirt-cheap companies fit for dusting? All this and more in the Value Investing discussion board. Only on Fool.com.

Longtime Fool contributor Rick Aristotle Munarriz would like you to know that Talk America is not a syndicated radio talk show. He does not own shares in any of the companies mentioned in this story.