Yesterday, American Science & Engineering (Nasdaq: ASEI) gave investors an object lesson in Wall Street "analysis." Most of the time, Wall Street cribs its estimates of what a company will earn directly from a company's own guidance. But what if the company is like AS&E, and refuses to give any guidance at all?

Unfortunately, the analysts aren't very good at, you know, analysis. That's bad news for AS&E investors. Yesterday, the company confirmed that sales in its fiscal first quarter 2011 slipped 2%, while profits per share dropped 9%. Total revenue came in at $53.6 million, and the company collected $0.74 per share in earnings. Free cash flow fell into the basement; while AS&E generated a cool $4 million in cash last year, its Q1 this year shows a near-$15 million deficit.

Investors, who had been told by Wall Street to expect $65.2 million in Q1 sales and $1.03 in earnings, were woefully unprepared for the news. They took out their anger upon AS&E, selling the stock off by nearly 8% as of this writing. Is that fair?

Since we can't judge AS&E on its nonexistent guidance, and we can't rely on Wall Street to guide us, either, I think it's best to focus on the facts:

  • AS&E generated $24.1 million in free cash flow over the last 12 months, giving the company a trailing price-to-FCF ratio of 27.9.
  • That's 44% less than the company generated in all of fiscal 2010, and 27% less than in fiscal 2009.

The same analysts who bungled the call yesterday believe that over the next five years, AS&E will grow at about a 15% clip. That's slower than OSI Systems (Nasdaq: OSIS), but faster than diversified rival L-3 Communications (NYSE: LLL). (On the other hand, it's a lot more than the single-digit growth AS&E has actually recorded over the last five years.) Maybe General Electric (NYSE: GE) was getting a better deal than expected when it recently sold off its own security unit.

True, AS&E's orders are growing, and backlog's up a heady 38% to $218.8 million at last report, so chances look good for AS&E to grow faster than it has years past. In this case, maybe the analysts will ultimately be proven right.

Personally, though, I think you should seek your bargains elsewhere.

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