"Don't look a gift horse in the mouth," goes the old proverb. I know I should follow the advice, but I just cannot help myself.

Twice in as many months, Motley Fool Hidden Gems alumnus II-VI (NASDAQ:IIVI) has done its best to make me look smarter than I am. Back when the company reported its fiscal first-quarter 2009 earnings, I warned Fool readers that sagging orders for new products suggested "the good times may soon stop rolling for II-VI." Management promptly proved me right by issuing an earnings warning in December that sent the stock tumbling 20%. At which point, Yours Fooly reviewed the new guidance ($300 million in annual sales and about $1.38 per share, profit) and pronounced the shares undervalued.

So what did II-VI do next? Reported earnings yesterday that nailed its new quarterly estimates, announced a round of cost-cutting measures including scaled-back capital spending, boasted of "increasing yields and productivity" -- and sent the shares soaring back up 20% during yesterday's trading. (Incidentally, to about where the stock sat before the December warning.)

Um, thank you?
Honestly, II-VI couldn't have made me look any better if it tried. So why am I pushing my luck and predicting that these shares, soaring since the earnings announcement, will fall right back down? Because that's what the numbers tell me will happen.

Consider: Revenues in the fiscal second quarter grew 3%, with accounts receivable rising relatively in tandem. But inventories ran up 24% over their year-ago levels -- eight times as fast as sales. Obviously, II-VI's tying up a lot of cash in these unsold goods. We won't know how much until management deigns to show us a cash flow statement. Still, at last report, II-VI had generated only $17.5 million in free cash flow over the 12 months ending in September -- against reported net income of $72.1 million.

So sure, the company remains profitable and is tightening its focus on its more profitable divisions. The company plans to sell its non-core eV Products subsidiary, and lists it as a discontinued (I've suggested that any of Accuray (NASDAQ:ARAY), Varian Medical (NYSE:VAR), L-3 (NYSE:LLL), or OSI Systems (NASDAQ:OSIS) could be potential buyers). And yet, even with the stock selling for 8x trailing earnings today, I don't think of it as much of a bargain when those "earnings" are four times past actual cash flow generation.

Foolish final thoughts
Consider, too, that new orders booked dropped 14% in Q2, and that CEO Francis Kramer says the "drop in demand" that began in November "continues" today. Thus, it's going to be hard for II-VI to reduce inventories until its customers reappear.

Moral of the story: Just because this crisis came upon II-VI swiftly, don't expect its resolution to be similarly swift.

IV more IV-I-I on II-VI, read:

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