One week ago, in our Foolish Forecast previewing Thursday's earnings release from networking-equipment maker 3Com (NASDAQ:COMS), I wondered aloud (in print, actually) whether the company would "go three-for-three" in beating Wall Street's "pro forma" (Latin for: "Stock options? We don't need to expense no stinking stock options!") earnings estimates.

As it turned out, the company did beat those estimates, posting breakeven pro forma results even as it missed sales estimates by a wide margin (read all about it here). Neither of those topics is the subject of today's column, however. Today, I want to revisit a question we posed two years ago: With its huge hoard of cash, is 3Com a potential "Green Gene"?

To recap, being a "Green Gene" means a company has a stock price lower than the firm's "net net working capital (cash + (0.75 * accounts receivable) + (0.50 * inventory)-total liabilities) -- the amount a company would be worth if it shut its doors, collected all the debts it could collect, and held a fire sale of its inventory, then distributed all the loot to shareholders."

So let's get to number-crunching. Referring to the balance sheet included in last week's earnings report, 3Com currently boasts:

  • Cash, equivalents, and short-term investments of $915.7 million;
  • Accounts and notes receivable of $171.7 million;
  • Inventories worth $171.4 million;
  • $486.7 million in total liabilities.
  • Its net net working capital (NNWC) is therefore: $643.3 million.

That works out to roughly 36% of 3Com's market cap, disqualifying 3Com from Green Gene-hood. Therefore, deep value hunters should probably seek prey with fatter wallets.

Prey? Or carrion?
Good point. After all, the point of calculating NNWC is to determine whether you've found a company that's worth more dead than alive -- and could be worth much, much more if it happens to survive. In this regard, non-vulture investors might still like 3Com -- as a turnaround play.

In 2004, I mentioned that if the firm could somehow generate some free cash flow, I'd be interested in buying. Of course, back then, the business had NNWC comprising 60% of its market cap. While the NNWC scenario has evaporated, I can't help noticing that for the first time in three years, 3Com generated positive quarterly free cash flow in fiscal Q4 2006. Because the firm failed to provide a cash flow statement with its fiscal Q1 2007 earnings release, we don't yet know whether it repeated that feat last week. But if the 10-Q filing (due out in about a week or so) shows that it did (and the rising cash hoard suggests so), we may have the beginnings of a turnaround under way. Stay tuned.

For more details on 3Com's Q1 performance, see "3 Stocks That Missed the Mark."

Want to discuss more likely Green Gene suspects with your Foolish friends? We've got a discussion board set up for just this purpose: Green Gene Stocks.

Fool contributor Rich Smith does not own shares of any company named above.