Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
So What: Net profit, which had been boosted by an insurance settlement last year, slumped 44% in yesterday's Q3 earnings report. (No surprise there. Motley Fool CAPS members have been panning this stock for months.) Yet Schawk insists that an apples-to-apples comparison of the results, which ignores everything from the settlement's effects to currency fluctuations, would show it actually growing its earnings 10% year over year.
Now What: Investors aren't buying it, and I don't blame them. Sales and gross margin both declined in Q3. Accounts receivable grew 5.5%, even as sales slipped. Yet free cash flow at the company is still outrunning reported net income, and looks likely to surpass $45 million this year. Schawk is selling for less than 10 times free cash flow today, and expected to grow 15% per year over the next five years. Bad news is bad news, but this really looks like a buying opportunity to me.
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Coca-Cola is a Motley Fool Inside Value recommendation. Coca-Cola and Procter & Gamble are Motley Fool Income Investor picks. The Fool owns shares of and has written covered calls on Procter & Gamble. The Fool owns shares of Coca-Cola.
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