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What: Shares of AsiaInfo-Linkage
So what: The "90% growth" number is sure to catch a few eyeballs, but Foolish investors might want to scroll a bit further down the press release to the bits where AsiaInfo admitted that its gross, operating, and net margins all plummeted (also because of the merger). Revenue growth notwithstanding, AsiaInfo ended Q4 with per-share profits 28% lower than it earned the previous year. Free cash flow also looks to be lower, based on lower reported operating cash flow, and AsiaInfo's keeping mum on capital expenditures.
Now what: Put it all together, and my very rough guesstimate shows AsiaInfo generating something like $45 million in free cash flow for the year, and selling for roughly 34 times free cash flow in consequence. Maybe that would be a fair price to pay if AsiaInfo was able to translate 90% revenue growth into 90% free cash flow growth, but so far it isn't doing that. Free cash flow and profits are both heading down.
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Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. The Fool has created a bull call spread position on Cisco Systems. The Fool owns shares of International Business Machines. Motley Fool Alpha owns shares of Cisco Systems. The Motley Fool has a disclosure policy.
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