I've been intrigued by the possibility of investing in the country's biggest trash hauler, Waste Management (NYSE:WMI), ever since I first read One Up on Wall Street. In that investing classic, master investor Peter Lynch cited the company as an example of the kind of stock you want to buy because "The rumors abound: It's involved with toxic waste and/or the mafia." (Of course, he wrote that in 1989. Nine years later, the rumors about Waste Management proved true in part, when the company was forced to restate four years' and $1.4 billion worth of past earnings.)

The reason I mention this, of course, is that Waste Management reported its 2004 earnings last week. Much like the cargo that Waste Management transports on a daily basis, the report was a mixed bag. Let's separate it out into the good, the bad, and the ugly. (For ease of reading, though, we're going to mix them up a bit.)

The bad: Investors who rely on price-to-earnings ratios in choosing their purchases should be wary of investing in Waste Management based on its trailing P/E ratio of 18.5. While that number compares favorably with the S&P average P/E of 19.8, it doesn't take into account Waste Management's considerable debt.

The ugly: Waste Management has a fair amount of cash on its books, but far more debt than cash. With a total of $8.2 billion in net debt, the company is better viewed as being a business with an enterprise value (market capitalization plus long-term debt minus cash) of $25.4 billion than a $17 billion company. And when you compare its free cash flow (FCF) to the enterprise value (EV), its EV/FCF ratio comes to a pricey 26.4.

The good: Just as the company's enterprise value belies the accuracy of its "price," so too does the company's cash generation prowess belie its GAAP profits. While the latter came in at $930 million in 2004, free cash flow was noticeably stronger than that: $960 million. What's more, year over year, Waste Management increased its free cash flow even faster than it did its GAAP earnings -- by 32% in fact.

Either valuation can be used to argue that Waste Management is a bargain. Its P/E of 18.5, divided by its 29% growth rate, gives the company a PEG of 0.64 -- a bargain, some might say. Others can point to its 26.4 EV/FCF, divide that by the 32% growth in free cash flow, and conclude that Waste Management is also a bargain at the 0.82 ratio that results. Both arguments, however, have to predicate themselves upon the assumption that this trash hauling business can grow its profits and/or cash generation at roughly 30% per year over the long term. In this Fool's opinion, that assumption simply fails the smell test.

Fools of a feather don't always fly together. For an alternative view of Waste Management's invest-ability, read Nathan Slaughter's "Consider Some Trash for Your Portfolio."

Fool contributor Rich Smith holds no position in Waste Management.