A handful of us here at Fool HQ check the low list every single day, and we're pretty passionate about it. It's an experience that can be unrewarding on most days, but finding one good opportunity makes up for a few weeks of emptiness.
Lately, the low list has been littered with retailers. Motley Fool Stock Advisor pick Gap
Along with a solid balance sheet, the company earns strong returns on capital, and its P/E of 15.5 is the lowest shares have seen since 2001.
I'm a sucker for companies with strong free cash flow; it's the fuel that drives dividend payments. But while Plantronics' free cash flow is strong, it's not as strong as it looks at first glance. Back out the tax benefits from stock options, and you're left with $55.7 million in free cash flow in the last 12 months. That's not bad, but it's much less than the company's reported $96.9 million in net income over the same period.
This effectively blows the company's 15.5 P/E up towards a price-to-free cash flow ratio of 25. That's still historically cheap for this company, but not quite cheap enough to get me interested in a business that faces competition from Logitech
For now, Plantronics will go on my watch list; I'll start paying closer attention to the business and its opportunities over the next few years. Headsets are a fairly profitable business, and there is plenty of room for innovation there, not to mention branching into related products like headphones.
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