One year and one day ago, I wrote here about security card-printer Fargo Electronics
Fargo reported its fiscal 2004 results yesterday, and in a few ways, the news this time around was a mirror image of last year's. Free cash flow was on the decline in 2004, down 13%. Revenues for the year grew 11%, but net profits just 7%.
One other number that changed -- and this time for the better -- was the rate of increase of Fargo's share count. Last year, the Minnesota firm was diluting outside shareholders at 3.8% per annum, but in 2004 the company cut way back to the Foolishly commendable rate of just 0.5%. So when you notice that the company's earnings per share grew just 5% while firm-wide profits increased faster, the discrepancy isn't due to dilution. It's a simple matter of rounding the per-share numbers to the nearest penny that caused most of the divergence this year.
So far, Wall Street isn't looking too impressed with any of these numbers. For one thing, Fargo went out of its way to warn investors that the first quarter, which is upcoming, is historically the company's weakest of the year. Fargo is looking to earn just $0.10 to $0.13 next quarter. Given that the company's earnings fell right in that range last year, at $0.11, the Street seems to be skittish over the likelihood of a no-growth scenario. By the close of trading yesterday, Fargo's stock had traded down nearly 2%.
Is that wise? No. On the contrary, it's Wise. Because what we have here, folks, is a company that's:
- reducing its rate of shareholder dilution.
- underpromising (we hope) on its coming earnings, rather than hyping its business prospects to win short-term popularity for its stock.
- maintaining a balance sheet so clean you could eat off it.
- generating more than $9 million in free cash flow despite the year-on-year decline.
In this Fool's opinion, Fargo did a lot of things right in 2004. Don't let Wall Street dissuade you from taking a look.
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