With the stock market at its high, it’s more difficult to be a buyer. But when certain stocks break down because they got ahead of themselves, they can be worth a second look if the underlying businesses are still growing.
FARO Technologies, Inc. (FARO) out of Lake Mary, Florida is an interesting technology company that manufactures three-dimensional (3D) measurement and imaging systems used in manufacturing and industrial applications.
The company’s sophisticated products are used for the inspection of components, assemblies, and structures in 3D. With more than 30,000 systems installed all over the world, FARO’s products and software are also used in the reconstruction of accidents and crime scenes.
The stock was on a tear last fall but broke down with the broader market in January. The company then missed consensus revenue expectations, and the position tumbled. This doesn’t mean FARO is no longer a good business, though.
The company’s one-year stock chart is featured below:
First-quarter sales for 2014 grew 12% to $73.4 million. Earnings grew more modestly, coming in at $5.0 million, or $0.29 per share, up from $4.6 million, or $0.27 per share, in the first quarter of 2013.
Management cited double-digit sales growth in the Americas and Asia, and mentioned that the company’s European markets are improving. FARO plans to increase its spending on new research and development this year and hopes to create new products for use in architecture, engineering, construction, and forensics.
FARO has lots of cash in the bank and practically no debt. Yet for the stock market, the first quarter wasn’t quite good enough.
The stock was at $60.00 a share but recently bounced off $40.00. The Street did take notice and several firms upgraded their research ratings on the company.
In this kind of market, where there’s relative certainty regarding interest rates and monetary policy, a missed quarter can be an attractive new entry point.
And it’s particularly the case with highly specialized businesses (like FARO, for example), where technical expertise and product exclusivity makes it more difficult for competitors to swoop in and steal market share. (See “This Energy Stock to Be Major Beneficiary of LNG Build-Out?”)
The stock market is a system that’s definitely fleeting. One minute a stock is a top momentum trade; the next, it’s cut in half. But there is opportunity in the volatility for those looking for new positions in a market that’s already gone up.
FARO was founded in 1981 and went public on the NASDAQ in 1997. Looking at the company’s history, it’s been one milestone after another of innovation, new technology, and the creation of new products for new markets.
Last year, the company made it onto Fortune magazine’s list of 100 fastest-growing companies in America.
And it’s the right size. FARO has the resources to make the investments required to create new technologies in this highly technical field. It’s the company’s new product innovation that will take this business to the next level.
If FARO’s share price experienced a reset after one missed quarter, then it’s worth a second look. While it may not be the fastest-growing technology company in the landscape, it is a double-digit producer.