Earnings quality are the least of their problems, FCF has amounted to 108% of NPAT over the past 7 years, even accounting for a weaker cashflow result this half, would still likely exceed 100%, I think an 'earnings quality' argument is a tough one to make.
Even allowing for
@madamswer's point that a portion of that cashflow has traditionally been required to replace some organic diminution, the quality of earnings is still quite strong.
Management have tried to make clear that a good portion of the current rapid growth is organic, meaning any further acquisitions the business might engage in will hopefully be purely accretive, rather than backfilling earnings diminution.
The business is likely being marked down in terms of multiple because it looks set after a few good years of growth to earn only as much as it was 6 years ago, people will pay a higher multiple for 'growth', perhaps they are only seeing a business returning to its earning capacity from several years ago (though to be fair, the stock traded at over 40c when it last earned at these levels).
What is being missed I suspect is a much more durable business that saw much of its earnings evaporate 6 years ago when the mining boom ended. Over a third of Legend's earnings came from mining at that time, I doubt any single industry speaks for more than 15% of the business as it is currently constructed.
I'd have thought this improved resiliency means Legend should command better than the 10-11x multiple of NPAT the business has traditionally been awarded, rather than a 30% discount - Eternalgrowth
