The Motley Fool Hidden Gems small-cap newsletter knows that finding good investing ideas in today's market isn't easy. That's why only the two very best ideas we can find make the grade as "official" recommendations each month. After that comes a handful of small but quality "Tiny Gems," and then there are the also-rans, the "Watch List" stocks -- fascinating investing ideas, but with a flaw or two that knocks them out of contention for our top awards.

Among those not-quite-pick picks, Watch Lister Water Pik (NYSE:PIK) reported its fiscal Q1 2005 earnings yesterday. (How's that for a segue?) And, in keeping with what's becoming a Q1 trend for the company, the results weren't pretty, either under generally accepted accounting principles (GAAP) or from the perspective of real cash earnings -- free cash flow.

Water Pik sales declined by 7% in comparison with fiscal Q1 2004. Earnings actually rose, but by just 2% per diluted share. As for the free cash flow, there was none for the quarter. But there was quite an outflow of cash. Net cash fell from $11 million a year ago to just $1.5 million on December 31, and the company burned through $13.5 million in cash over just the past three months. That was an improvement over last year's net cash outflow of $19 million, it's nothing to brag about.

The good news is that the bad quarter appears to be a seasonal affliction for this business, given that last year's first quarter was similarly weak, in cash-flow terms. Moreover, the company did record strong free cash flow over the three quarters preceding this one, and it has generated free cash flow on an annual basis for four of the past five years, the exception being 2001.

One bad quarter does not a bad company make. And that's even more true when the bad quarter is a recurring phenomenon, and consistently balanced out by three good quarters in a row. As I calculate it, Water Pik generated about $26.2 million in free cash flow over the past year, giving it an enterprise value-to-free cash flow ratio of roughly 9.2. Although not the world's best business, Water Pik at least looks cheaper than its competitors, such as Pentair (NYSE:PNR), with a 24.6 ratio, and A.O. Smith (NYSE:AOS), with negative annual free cash flow.

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Fool contributor Rich Smith holds no position in any of the companies mentioned in this article.