The bull case for FARO Technologies
CAPS All-Star saunafool introduced us to FARO late last year as a manufacturer of "3 dimensional laser measuring tools that totally transform a lot of manufacturing and repair industries. There is no doubt that adoption of this technology will grow for years." Indeed, already such industry stalwarts as General Motors (NYSE: GM) and General Electric (NYSE: GE), Boeing (NYSE: BA) and Lockheed Martin (NYSE: LMT), patronize FARO's products.
In March, fishbed21 suggested that: "Even though the pace of construction is bound to slow down in U.S. due to a slump in economy as we see it now, the accelerated speed of construction and development in rest of the world should allow plenty of opportunity for this company to sell its services, soaring its value."
A sentiment echoed by Jeffreyw last week: "FARO will benefit with the recovery of manufacturing and construction. Buy at these low prices today!"
How low, you ask? Pretty darn low at first glance -- and second as well. Thanks in large part to Friday's sell-off, FARO sells for just 11 times trailing earnings, giving it very nearly a 0.5 PEG ratio once you apply Wall Street's projected 20% growth rate.
Granted, when viewed from the perspective of free cash flow (FCF), FARO isn't quite as profitable as that first glance suggests. Yet despite its depressed FCF, the stock still sells for a P/FCF ratio of less than 19 -- still a bargain if FARO achieves the growth that analysts expect of it.
Will the onrushing global recession postpone that growth? I rather expect it will. But I'm also confident that once global growth returns, FARO will still be around to enjoy it. While cash isn't exactly pouring through the front door, FARO already has more than $100 million -- nearly half its market cap tucked away for a rainy day. With that cash cushion to lean on, I expect FARO will weather the storm just fine.
