Ask most value investors what lesson they consider most valuable when it comes to picking a stock, and you'll probably hear "margin of safety." That is, getting a stock at a low-enough price so that even if you're a bit off on your analysis, there's enough of a discount to absorb some of that mistake. With investor enthusiasm having pushed up the valuation on the entire filtration sector, I wonder whether Donaldson
Results for the fourth quarter don't offer up a compelling story, good or bad. Sales grew about 9% net of currency effects, and reported net income was down slightly from the year-ago period to just more than $25 million. Investors must also consider the fact that a tax charge of $4 million and an increased litigation reserve of $6.4 million shaved away a good-sized chunk of earnings.
Cash flow doesn't tell the complete story, either. Yes, free cash flow was up more than 20% over last year, but it was still down almost 7% from two years ago and 19% from three years ago. What's more, free cash flow yield (free cash flow divided by revenue) is some 40% lower than it was three years back.
Turning to the business at hand, the company saw revenue increase 10% in both the engine and industrial businesses, with sales to Asia generally quite positive. While certain segments such as gas turbine and engine aftermarket/replacement were soft, sales to truck and off-road markets were strong.
Looking at a broad range of filtration companies -- including CLARCOR
For more finely filtered Foolishness, sift through these Takes:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).