Remy International Inc (REMY)’s Move

Now, the company’s cash flow statement shows us that Remy isn’t quite as profitable as it looks. But even so, the $35 million in cash profits that Remy generated over the past year still give the company a fair-seeming price-to-free cash flow ratio of 16, and a not-unreasonable enterprise value-to-free cash flow ratio (factoring in the company’s net debt) of about 22.

Given that S&P Capital IQ currently has Remy pegged for earnings growth of more than 41% per year over the next couple of years, the high multiples to today’s profits seem appropriate. That’s assuming that the company achieves what analysts are promising it will achieve and doesn’t fall closer to the average growth rate projected for the auto parts industry — a much more modest 13%.

Foolish takeaway
Remy is not a company without blemishes. Last quarter’s performance was frankly quite disappointing. Forty-one percent annual growth, even if achieved over the next two years, cannot be maintained indefinitely. And the company’s $310 million debt load ($217 million, net of cash), is a bit higher than I’d like to see as well. But overall, the stock’s valuation still looks attractive.

So far, only one analyst (B. Riley) is following Remy International Inc (NASDAQ:REMY) on Wall Street. But to my Foolish eye, this is a growth story that bears watching. It might even be one worth buying, before the rest of Wall Street catches on to what B. Riley has discovered.

The article This Just In: Upgrades and Downgrades originally appeared on Fool.com and is written by Rich Smith.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends General Motors.

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