Sayings become sayings because of the truth they contain. Take, for instance, "You can please some of the people some of the time ." and apply it to the Q3 earnings report put out last week by General Dynamics (NYSE:GD).

Some investors were undoubtedly pleased to see the defense-contracting powerhouse "beat" Wall Street estimates when it reported $1.08 per share in net profits -- a couple pennies ahead of expectations. But not all. More investors, it seems, were displeased by the fact that it "missed" revenue estimates when it reported $6.1 billion in sales, 14.5% better than last year, but 3% shy of analyst projections. As a result of that shortfall, the stock is now down 5% from its pre-earnings price.

Count me in the "pleased" camp, though. Taken as a whole, I think General Dynamics did a fine job this quarter. Operating margins improved, as sales growth outpaced growth in operating costs. Net margins grew, too -- up 38 basis points to 7.25% for the quarter. And just as you'd expect from a firm that improved its margins, net profits from continuing operations outpaced growth in revenues alone, coming in at an even 20%. And free cash flow, while not measuring up to the first half's torrid 44% pace (as we predicted, by the way), still grew a respectable 13%.

I suppose an investor could still be disappointed by that number. After all, General Dynamics appeals to Fools because it's a cash-generating machine. The fact that free cash flow production didn't match sales growth could easily be taken as a sign of weakness. But -- again, as I mentioned in last week's Foolish Forecast -- the company's free cash flow trends show intense seasonality. The bulk of the greenery shows up only in the winter quarter -- the quarter we're in the middle of now.

So it's probably not worthwhile to project a run rate on GD's free cash flow. Let's instead apply the conservative 13% rate of year-to-date free cash flow growth to last year's total, and work up a quick-and-dirty valuation on the company:

Last year, the General produced $1.8 billion worth of free cash flow. Grow that figure 13%, and we could see the firm break $2 billion by year-end. Divide $2 billion into GD's $32.5 billion enterprise value, and the stock scores a price-to-free-cash-flow ratio of 14.6 -- less than the market average of 18.3. At that price, GD looks cheap relative to the average S&P 500 company, even though analysts think it will grow somewhat slower than the S&P average.

Long story short, there's no reason for investors to discharge the General from their portfolios at today's price. To the contrary, they might even want to re-up.

For further Foolishness:

  • Missed last week's Foolish Forecast? Read it here.
  • Want a quick-and-dirty look at GD's numbers? We've got 'em for you.
  • And in case you're interested, we've also got the numbers crunched for GD rival Armor Holdings (NYSE:AH).

General Dynamics or Armor Holdings -- whose side are you on? Join CAPS, the Fool's new community-intelligence stock-rating service, to make a pick. Then make a pitch to tell more than 10,000 fellow investors why they should agree with you. Of course, a free trial of any of the Fool's newsletters will give you a leg up on the competition.

Fool contributor Rich Smith does not own shares of any company named above. The Fool's disclosure policy does, in fact, please all of the people all of the time.