Value Line (NYSE:VALU) shareholders who bought prior to Friday's earnings report (and against my advice) may be questioning the "timeliness" of their purchase this week. The shares were down 5% before the news broke -- but for good reason? That's what we aim to find out today.
OK, starting with the headline numbers from Value Line's press release, we learned that:
- Sales rose a bare 2% in comparison to fiscal Q2 2006.
- Operating income rose just 4% year over year to $9.4 million.
- Profits per share did a bit better, rising 7% to $0.63.
That is, almost literally, the sum total of the news encapsulated in Value Line's ultra-laconic earnings press release.
Anybody paying attention?
Neither Wall Street nor the mainstream media do a very good job of helping investors understand Value Line. Analysts don't cover the company, and while Value Line provides data to media moguls like Reuters (NASDAQ:RTRSY) (and soon Thomson (NYSE:TOC)), the media don't return the favor by passing on much data about Value Line. The one big outfit covering earnings, AP, devoted all of five lines of text to the news, basically regurgitating the press release.
Meanwhile, because Value Line can't be bothered to provide more detail in its press releases, it falls upon us Fools to visit the SEC's website and dig around in the 10-Q filings. What we find is that Value Line had negative cash flow of $1.3 million during Q2, and cash flow totaling $4.7 million so far this fiscal year. That may not sound like much, but it is at least 9% better than where Value Line was this time last year.
So as it turns out, Value Line's cash flow statement shows that it did a bit better than the media suggested. The more important question for investors, though, is whether it did well enough to justify the stock's current price.
9% growth is better than 4%, sure. But when a stock is selling for a trailing P/E of 16, and a price-to-free cash flow ratio of nearly that, it's just not growing fast enough to justify the market cap. Competitors Morningstar (NASDAQ:MORN) and TheStreet.com (NASDAQ:TSCM) may look pricier than Value Line, but with sales growth rates many times faster, they're clearly eating Value Line's lunch.
Foolish takeaway
So what's my take? Value Line's rear is on the line. It needs to get it in gear or risk becoming an anachronism.
And yet, for all this, Value Line got tapped to join the Motley Fool Stock Advisor portfolio by growth stock guru David Gardner back in August. What gives? Pick up your free copy of the newsletter, and learn why David sees growth where no one else is looking in Value Line.
As Foolanthropy enters its second decade, join us in working to bring financial education to the world's children. Learn more about Foolanthropy's new direction.
