GATX Corp (NYSE:GMT)
CAPS Rating:
The Company leases, manages, operates and invests in long-lived, widely used assets in the rail, marine and industrial equipment markets.
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The Company leases, manages, operates and invests in long-lived, widely used assets in the rail, marine and industrial equipment markets.
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Why in the world does this company have a $2.1 billion market cap?The company has $3.3 billion in long-term debt and it’s been losing hundreds of millions in free cash flow every year. This is another one of those stocks that investors get fooled into investing in. Based on the accrual method of accounting this company looks very profitable. However, in the real business world net income is meaningless, its cash that matters and its cash that keeps the doors open. Net income is just an accounting number that no intelligent investor should every pay attention to. This is just an awful business and I see no reason why it shouldn’t underperform significantly over the next five years.
I understand your view of the cash flow statement, however, this is one of those picks where the red thumb has the ability to get worse and worse as time goes by.
The company is not growing. Its already grossly overvalued. I just don't see a reason why the share price would increase enough where it would put me in the red. Over the long-term I'm pretty confident that I will be proven right. In the short run anything could happen.
Net income means nothing???
So how did you get this idea, from the Investopedia website on free cash-flow???
Cashflow is important buttttt why is it that when companies post earnings and beat estimates their stocks go up? Do you see headlines where it says "FCF is up!! BUY!"
If you have a job, you used the income to pay your bills.. You lose that income you don't qualify for a new car loan, a mortgage, or or anything other debt. Then when you can't pay your bills... because you lose your income... you default....
Maybe if you knew accounting you would understand that accrual accounting factors in future expenses that are expected to occur or to account for expected future losses.
Quit abusing "intelligent investor" if you have never read the book...
All of the world’s greatest investors use free cash flow to value a business. Even the greatest investor of all time, Warren Buffett, uses free cash flow to value stocks, only he calls it "owner’s earnings."
You can’t compare your personal net income to a corporation’s net income. You're right when you say the accrual accounting factors in future expenses that are expected to occur or to account for future losses, however, net income also factors in future profits that are expected to occur like accounts receivable. There is no way to guarantee that a company will ever collect its receivables it can only hope to collect them. Net income is also flawed because it takes into account depreciation (non-cash) and amortization (non-cash) instead of just subtracting CAPEX (real cash expense), which in most companies is greater than depreciation and amortization. This means that net income is almost always inflated. Net income also doesn't take into account the changes in net working capital (real cash expense). If you have to keep buying inventory in order to grow your business that's a real cash expense that should be deducted from a company’s earnings.
All of the companies that turned out to be massive frauds manipulated their net income. This is because net income is just an accounting number and not true profit. Net income is probably one of the easiest things to manipulate in accounting. In fact, there are hundreds of things you could do to inflate net income without actually increasing true profits.
If a company needs to pay its bills, it will use cash to pay those bills. You cannot use profits that you expect to earn in 6 months to pay today's bills. I guess what I’m trying to say is that in theory, accrual accounting makes sense. However, in the real world theory doesn’t always work out the way you want it to.
Cash is king! A company has never gone bankrupt by earning too much cash; however, many companies have gone bankrupt because they were earning a lot of “accounting profit.”