The past year has not been kind to Corning (NYSE: GLW). For 12 months, it's lagged the S&P 500, and this week's earnings release did nothing to change that. The stock still trades within a few cents of its pre-earnings price. Is this the best we can hope for?

The rundown
On the surface, this was a pretty ho-hum quarter for Corning. Although the company ramped sales 24% year over year, earnings actually declined 10%, excluding the effects of its litigation settlement fund. But peer through the looking glass, and you'll see that Corning is actually hopping:

  • Shipments of the company's flagship product, the glass used by firms such as AU Optronics (NYSE: AUO) and LG Display (NYSE: LPL) to manufacture screens for LCD televisions, PCs, and smartphones, expanded only 5% year over year.
  • But sales at the telecom division (fiber optics) grew 30%, and environmental technologies (filtration devices) grew 35%.
  • Meanwhile, the unit that makes Gorilla Glass exploded into a 165% year-over-year growth spurt.

And there's more where this came from. Reviewing the results, CFO Jim Flaws assured investors, "Every one of our segments will have significant growth this year and over the next several years." He expects Gorilla Glass to soon generate $1 billion in annual sales, as it's adopted as the standard in mobile devices made by LG, Samsung, and Apple (Nasdaq: AAPL), notebook PCs from Dell (Nasdaq: DELL), and the newest edition of Sony's (NYSE: SNE) Bravia television line. So why aren't investors buying?

The answer
For one thing, Corning's earnings aren't tracking its sales growth. Analysts predict that profits will lag sales growth all year long, falling by 3% before climbing back by 9% next year -- and averaging about 11.4% growth over the next five years.

Even so, that's more than enough to justify buying Corning today. Sure, I've been a Corning skeptic for many years. Sales and earnings growth notwithstanding, I've criticized the company for failing to translate success into cash profits. But now, while free cash flow still lags reported earnings, the gap is closing.

Already, Corning's $2.4 billion in annual free cash flow gives the stock an enterprise value-to-FCF ratio of 12. Alongside its 11.4% growth rate and 0.9% dividend yield, I believe this makes Corning a fair value today. As FCF approaches (and hopefully surpasses) GAAP earnings, it could even become a bargain one day soon.

Get to know Corning. Review our classic interview with CEO Wendell Weeks, in two parts.