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Rosetta Stone, Inc. Message Board

  • cdanajackson cdanajackson Sep 16, 2011 1:46 AM Flag

    Good things and bad things

    Well, there are some goods things and bad things about RST stock.

    First, the good news.

    The company has a very strong balance sheet, including having no debt; on a free cash flow basis, the company earned $0.26 per share versus a -0.45 earnings per share loss. As earnings per share are based on accrual accounting, it is the best way to see a company's true cash profitabilty; hence, my use of free cash flow. it's better to follow the cash.

    Sales over the past 7 years has grown 49.51% annualized.

    Now, for the bad news.

    The stock has a price to free cash flow ratio is 47.27 versus a P/E ratio of -26.91. The former ratio is definitely that of a growth stock, though the company is really a small cap value company.

    The 47.27 multiple is somewhat confirmed by the company's forward P/E ratio of about 41.76.

    Finally, based on my preliminary discounted cash flow model, I give the stock a fair value of about $13.88 versus yesterday's closing price of $12.37. So, on this basis, the stock is pretty close to being fairly valued.

    As I mentioned earlier, there are good things and bad things about this stock. However, in the end, I don't see this stock as a potential buy and a candidate for further due diligence.

 
RST
8.82-0.29(-3.18%)Sep 19 4:05 PMEDT

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