Look What the Koch Brothers Are Buying Now

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This suggests that analyst expectations of 12% long-term earnings growth at Molex — already too slow to justify a 30 P/E — may prove overly optimistic.

Overpriced? No. Way overpriced.
Simply put, the valuation on this acquisition just doesn’t work. P/E is only the half of it. Real cash profits at Molex — free cash flow — amounted to a meager $120 million over the past 12 months — less than half of Molex’s reported net income. As a result, the price-to-free cash flow valuation on this acquisition is even worse than the P/E makes it appear: The Kochs are paying a staggering 60 times free cash flow for their new prize.

And again, this is for a company expected to grow at only 12%.

Foolish takeaway
When you get right down to it, I think Molex shares were overvalued even before Koch Industries agreed to pay a 30% premium for them. Ultimately, that’s a mistake that will cost the Kochs big-time. It will probably necessitate a writedown of their new assets, even bigger than the amount sunk into losing the 2012 electoral contest.

This just goes to prove that the Koch brothers aren’t really the “evil geniuses” they’re portrayed as in the press. They’re fallible investors just like the rest of us, and just as liable to overpaying for their stocks.

The article Look What the Koch Brothers Are Buying Now originally appeared on Fool.com and is written by Rich Smith.

Fool contributor Rich Smith owns shares of Apple. The Motley Fool recommends and owns shares of Apple.

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