"At a P/E of 20, and price-to-free cash flow ratio of 17, SAIC looks a mite pricey for what analysts on average expect to be a mere 13% grower over the next half decade. If SAIC is to reward investors, it's going to need to pick up the pace a bit." -- Me, "Foolish Forecast: SAIC Riding High," Dec. 10

Well, I'll be darned. As it turned out, SAIC (NYSE:SAI) wielded its riding crop well last quarter, with the result that the company galloped away with considerably better-than-expected earnings yesterday evening. Third-quarter earnings "from continuing operations" came to $0.26 per share ($0.03 better than expected) on sales that eclipsed predictions by better than three percentage points. Calling the quarter's results "strong" and affirming that SAIC is "on track for an excellent year," CEO Ken Dahlberg credited "more profitable border, port, and mobile security products" for helping to raise the company's operating margin 110 basis points in comparison to the year-ago quarter, to 7.9%.

Still too slow
Now for the bad news: As sales soared, they also soaked up a bit more working capital than I had hoped would be the case. That, exacerbated by rising days sales outstanding, resulted in SAIC generating less than half the cash flow from operations it managed to rake in last Q3. Granted, capital expenditures also fell considerably, but when all was said and done, free cash flow year-to-date is substantially lower than in last year's third quarter. Based on free cash flow generated year-to-date, it now looks like SAIC is on track to report just more than $240 million in free cash flow for fiscal 2008.

So as bad as I thought the price looked on Monday at a P/E of 20, I'm even less enamored of the firm's apparent price-to-free cash flow ratio of around 36. Call me a cheapskate, but that seems an awfully high price to pay for a firm that most analysts don't expect to grow faster than 13% per year over the next half-decade.

Seriously, folks, when you've got nearly every government contractor in the nation generating greater free cash flow than it's reporting as net income -- General Dynamics (NYSE:GD), L-3 (NYSE:LLL), Boeing (NYSE:BA), Computer Sciences (NYSE:CSC), Accenture (NYSE:ACN) -- why would you bother investing in a firm that's upside-down on the cash profits/accounting profits equation? If you ask me, any one of these companies could offer a more compelling value proposition than does SAIC.

Fools of a feather rarely flock together. And the vulture investors at Motley Fool Inside Value couldn't disagree with Rich more strongly. Find out why they think he's missing the real value story at SAIC when you try out Inside Value free for 30 days. Accenture is also a Motley Fool Inside Value pick.

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