Ah, W.D., my friend. The foam shortage? That's the current bear MacGuffin. The deal with Radisson? Nice, but not enough. Let's get to the meat of the problem.
The steady growth that analysts have predicted? I'll believe it when I see it, thank you. W.D. claims it's grown the shareholders' bottom line at a 39% pace over the past five years. But diluted earnings per share since the year ended in January 1999 have actually looked like this: $0.28, -$0.45, -$2.09, -$0.66, $1.10, $0.69, $0.80. That's lumpier than Aunt Betty's oatmeal.
As for free cash flow, I'm not impressed. For the first half of 2005, the company put up a measly $7.8 million in free cash flow. During the same period, it spent $12.4 million buying back its stock. And while we're on that subject ...
Fluff for everyone else
The stock buyback W.D. praises? I wouldn't be so keen to call it a benefit for shareholders. Consider that the basic share count ballooned by 10% to 36.2 million between 2003 and 2004. This year, the company spent millions to bring it back down a hair to 35.8 million. By the way, through July, Select Comfort
Yes, in some cases, buybacks are shareholder-friendly. But not, I would argue, when they come at a high price and serve mainly to mop up for compensation and sweet financing packages. To a degree, that's the case with Select Comfort. What this really represents is a transfer of cash from current shareholders to those who exercised the options and warrants -- employees and early-bird financiers. Fair? Maybe. But judge for yourself how shareholder-friendly it is.
Bottom line: This company is OK. The product is good. But I'm not in this game to pay a premium for mediocrity. Wake me when the stock's on sale.
Wait! You're not done. This is just a quarter of the Duel! Don't miss Seth's bearish beginning, W.D. Crotty's bullish argument, or W.D.'s final word. When you're done, you're still not done. You can vote and let us know who you think won this Duel.
At the time of publication Seth Jayson had no positions in any company mentioned. View his stock holdings and Fool profile here . Select Comfort is a Motley Fool Hidden Gems pick. Fool rules are here .