Ouch! You know that had to hurt ... the analyst's feelings, that is.

What? Who?
The downgrade. The one that Milwaukee-based stock shop Robert W. Baird slapped on former Motley Fool Hidden Gems recommendation Mine Safety (NYSE:MSA) yesterday.

You hadn't heard? Well, the story goes like this: On Monday, Mine Safety reported its second-quarter earnings. The news wasn't bad in and of itself -- sales up 18% and profits up 15% to $0.56 per share -- but it wasn't what they were looking for up on Wall Street ($0.60 per share.) And the stock got slammed, more than 15% since the earnings announcement.

Problem was, Robert W. Baird got caught with its fire-retardant pants down. It didn't get around to downgrading the stock until after the damage had been done, and so got stuck with a 26-percentage-point loss on its pick of last summer.

Ah. Ouch
Exactly. And yet, might Baird have gotten off easy? Reviewing the news, I fear it might have -- and that any investors still hanging around the stock may not be so lucky. Strong growth in sales, it seems, owed in large part to favorable exchange rates. For example, 37% sales growth in Europe included a 22% increase in the value of the euro. Therefore, after currency adjustments, the real sales growth was only 15% in Europe. Which helps to explain why sales at Mine Safety went up 18% -- but piles of unsold inventory grew 25%.

Meanwhile, significant expenditures to expand manufacturing capacity pushed free cash flow generation deeply into the red at Mine Safety. As a result, the company currently sports negative trailing free cash flow of $6.7 million. Seeing as it already sells for a 17 P/E versus 11% anticipated long-term growth, I honestly see no valuation argument in the stock's favor right now.

Inventing problems?
What's bad for Mine Safety could be bad for other folks. Analysts on the earnings call pressed again and again for management to admit to a looming second-half slowdown in its European business. Presumably, they're more worried by earnings warnings at heavy industrial exporters like Oshkosh (NYSE:OSK) than reassured by superb profits at just-as-heavy firms like Caterpillar (NYSE:CAT), or at DuPont (NYSE:DD), which makes fire-retardant chemicals. Mine Safety didn't give an inch, denying that it sees any "significant slowdown," rather than citing increased European backlog.

Then again, between its inventory problems and its too-high stock price, I suspect analysts didn't really need to go fishing for additional reasons not to own Mine Safety. I know I don't.

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Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.