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Stan, cheap enough for you yet?

Hey Phil, its funny you should ask. I went back to look at the summary I had written the last time I did a deep dive into Stratysys. Right there in black and white was “Wait for $15 - $16.” It looks like we are in that neighborhood now. I definitely have my antennas up, but might be leaning toward what jeffbas said and hold out a little longer. The market seems to have a penchant for hammering these small caps brutally.

I haven’t listened to the CC, but your notes don’t inspire confidence. The working capital management looks wretched. It sounds like the CFO fancies himself a fixed rate asset private equity manager. I can’t believe the number of companies that I follow that have a large chunk of their cash tied up in illiquid auction rate notes. I think the SEC should make companies give a fuller accounting of their investments. It’s so general now as to be completely useless.

I think without listening to the call that my first red flag is that the number of systems they are selling seems to have leveled off. I know they claimed that was because they were focusing on selling the high end systems. That appears to be the case, since revenue is growing as unit volumes are flat, but I’m not sure that is the best way to go. This product is in the early adopter phase and it seems they should be growing the installed base as much as possible. Selling more of the low end systems would accomplish that and build in an upgrade cycle. Not only does that add to the longer term consumables business, but it builds toward the time when these printers and systems become part of a manufacturer’s standard set-up. This is an area that Faro seems to emphasize particularly well and I believe it has merit. Jay always talks about wanted to keep a 50/50 split between new customers and existing customers. I think that is a good idea in pushing toward wiser spread adoption.

There also seems to be some problem in their part making service organization which should also aid in further adoption. Folks can try out the quality without an upfront investment. If they like what they get, they will often become future system customers. This area has been declining and I read something about needing to reorganize how that business is run.

There seem to be some growth issues here and I’m not sure management has a clear vision of where it’s going or at least it doesn’t seem to be able to clearly communicate it. I agree there are some similarities to growing pains that Faro encountered. Stratysys can’t have Jay though ;-).

I will listen to the call or read the transcript when I get the chance, but in answer to your question, it is getting into my range if I don’t dig up too many unsettling items.

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