Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Mobile Mini (NAS: MINI) reported a blockbuster 81% increase in earnings on 11% revenue growth yesterday -- but the stock dropped more than 10% in response. What the heck is going on?
So what: Here's what, in a nutshell: Mini earned $0.19 last quarter, but Wall Street had promised investors Mini would earn a maxi-er profit of $0.21 per share. So Mobile Mini missed.
Now what: In today's topsy-turvy market, that's probably reason enough for the sell-off -- but it's not the only reason to be skeptical of Mobile Mini. While analysts have this company pegged for 25% long-term earnings growth, Yahoo! Finance is currently showing it as priced at 45 times earnings, which may be too much to pay for the growth prospects.
From the perspective of free cash flow, the company looks quite a bit cheaper. Mobile Mini generated about $40 million in free cash (operating cash flow, minus the cost of buying new "boxes" for its lease fleet, plus the proceeds of old boxes it sold off) for the first half of this year. Run-rate that out, and you get perhaps $80 million in free cash flow through year-end, and a temptingly low 10 times price-to-FCF ratio on the stock. Just a word to the Foolish: When considering Mobile Mini, remember to keep an eye on the maxi picture.
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