U.S. based manufacturer of advanced process control metrology systems, Nanometrics Inc. (NASDAQ: NANO) is among those small stocks that generate much investor interest. On January 14, 2010, NANO made an impressive rally, gaining almost 30% to reach $17.96, by the end of day’s trading. Volumes also moved to over 5 million.
However, it is interesting to note that the boost for NANO came primarily from Intel’s announcement of planned capital expenditures for the next fiscal. Intel and some of the other big clients of NANO contribute more than 10%, each, to the gross revenues. As the initial enthusiasm settled, the stock witnessed a correction, closing at $15.83 last Friday, while the volumes also narrowed. From a value investing lens, NANO successfully meets certain key criteria, like price vs. tangible book value, current ratio, etc. On the other hand, it falls flat on other fronts, such as debt-equity ratio, historical EPS growth, etc. The first time the company reported profits after FY 2005 was in the second half of FY 2010.
Nanometrics faces certain disadvantages, e.g. smaller size compared to the competitors, high switching costs for the consumers, customer concentration, stringent anti-takeover provisions, and so on. The company was severely hit by the global recession, though it has been consistently outperforming the analyst estimates for last three quarters. The revenues registered a 182% growth y-o-y during 9M 2010. NANO falls in the higher bracket of the industry in terms of the returns on investments and profitability margins. On the back of its product differentiation, geographical diversification, increasing penetration in high-growth segments, continuing customer confidence, and recent turnaround, the analysts are pegging NANO at around $18. With current levels hovering much below the lower estimates, NANO is a ‘buy.’
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