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Wednesday, 7 December 2005
December 7, 2005 Hurco Companies (HURC)

Hello Friends! Thanks so much for stopping by and visiting my blog,Stock Picks Bob's Advice. As always, please remember that I am an amateur investor, so please consult with your professional investment advisors prior to making any investment decisions based on information on this website or on my podcast.


Looking through the list of top % gainers on the NASDAQ todlay, I came across Hurco Companies, Inc. (HURC), which closed at $27.33, up $4.50 or 19.71% on the day. I do not own any shares, nor do I have any options on this company.

According to the Yahoo "Profile" on HURC:
Hurco Companies, Inc., an industrial technology company, engages in the design and production of interactive, personal computer-based, computer control systems and software, and computerized machine tools for sale to the metal working industry. The company’s primary products consist of general purpose computerized machine tools for the metal cutting industry, principally vertical machining centers. It also produces computer control systems and related software for press brake applications that are sold as retrofit control systems.
As is often the case, what drove the stock higher was a very strong earnings report. Yesterday, after the close of trading, HURC announced 4th quarter 2005 results. For the quarter ended October 31, 2005, sales and service fees totalled $34.7 million, up sharply from the $28.9 million reported in the year earlier same period. Net income was up over 200% at $7.2 million or $1.13/diluted share, from $2.3 million or $.36/diluted share the prior year. This strong report was enough to drive the stock strongly higher. In addition, this report came out after a relative panic on this stock precipitated by the November 30, 2005, delay in the earnings announcement which drove the stock lower a week ago:
INDIANAPOLIS (AP) -- Hurco Cos. shares tumbled Wednesday after the manufacturer delayed the release of its fourth-quarter and full-year earnings report, saying it needs more time to review its tax liabilities.
Shares of the Indianapolis company, which makes computer controls, software and systems for the metal cutting and forming industries, fell $1.81, or 7.7 percent, to $21.60 in midday trading on Nasdaq, and dropped as low at $20.35 earlier in the day. But Hurco shares have risen about 39 percent since the year began.
I guess this was a case of fearing the worst and getting the best!



How about longer-term? Taking a look at the Morningstar.com "5-Yr Restated" financials from Morningstar.com on HURC, we can see that revenue has actually been a bit erratic, declining from $96.2 million in 2000 to $70.5 million in 2002. Since 2002, revenue has been growing strongly to the current $119.6 million in the trailing twelve months (TTM).


Earnings also declined during the same period revenue was dropping slipping from $.84/share in 2000 to a loss of $(1.48)/share in 2002. Since that time earnings have grown strongly and consistently to the $1.83 reported in the TTM.


Free cash flow has remained positive, with $5 million reported in 2002, increasing to $7 million in the TTM.


The balance sheet looks solid with $12.9 million in cash and $55.8 million in other current assets easily covering both the $30.4 million in current liabilities and the $4.4 million in long-term liabilities.


How about some valuation numbers? Reviewing Yahoo "Key Statistics" on HURC, we can see that this is a small cap stock with a market capitalization of only $169.86 million. The trailing p/e is downright cheap at 14.98, with a forward p/e (fye 31-Oct-6) of only 12.09. There isn't any PEG reported, but with the latest 200% growth in earnings, this has to be under 1.0!


Reviewing information from the Fidelity.com eResearch website, we see that HURC has a Price/Sales ratio of only 1.2. This is the lowest in the "Scientific/Tech Instruments" Industrial Group. Leading off this group is Garmin (GRMN) with a Price/Sales ratio of 6.8, followed by Flir (FLIR) at 3.8, Agilent (A) at 2.5, Beckman Coulter (BEC) at 1.5, Fisher Scientific (FSH) at 1.5, and at the bottom, with the cheapest valuation was Hurco (HURC) at 1.2.


Looking back at Yahoo for some additional valuation numbers, we find that there are only 6.22 million shares outstanding. To top off this low float, there are 633,930 shares out short as of 11/10/05, representing 12.40% of the float or 5.8 trading days of volume. I would suspect that the strong price action today included some short-sellers scrambling to cover their negative "bets" as the stock climbed strongly!


The company does not pay a dividend and no stock split has been reported on Yahoo.


What about a chart? Looking at a "Point & Figure Chart" on HURC from Stockcharts.com, we can see that the stock seemed to be moving higher between May, 2004, and January, 2005, when the price climbed from a low of $7.00 to a high of $19. However, after that the stock sold off back to the $10.50 level where it found new resistance, and appears overall to be trading higher now. The chart looks strong and not very over-extended imho.





So let's summarize, the company a week ago delayed earnings results causing a bit of a panic with investors. Then instead of reporting problems, they announced fabulous earnings for the quarter! The company, at least for the last 3-4 years has been steadily growing revenue and earnings, they are free cash positive, have a solid balance sheet, great valuation numbers with a low p/e and a low Price/Sales ratio. Even the chart looks strong!

Unfortunately, I don't have a buy signal from my own portfolio, otherwise, this might have been where I would be shopping!

Thanks again for stopping by and visiting! If you have any questions or comments, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Bob













Posted by bobsadviceforstocks at 5:43 PM CST | Post Comment | View Comments (5) | Permalink

Wednesday, 7 December 2005 - 7:02 PM CST

Name: Steve

LOL, I was looking at this one too today with an itchy trigger finger. But stocks under 200M market cap with a low number of shares outstanding always give me heartburn. I did however pull the trigger on BOOM at 28.5. I'm not sure if it was because you had just purchased it, but you probably had some influence. My sell points are much more conservative than yours. I typically sell a portion at 15%, 30% and then let the rest ride making sure it never goes below break even. For past 4-5 years, stocks have taken dips in January. Do you ever take advantage of seasonality for your trades?

Wednesday, 7 December 2005 - 9:25 PM CST

Name: Steve

Hi Bob,

Just a followup to my last question regarding seasonality. You've mentioned that you often rely on your current portfolio positions as a barometer of the stock market. Many of my stocks dropped significantly during this year's downturn in October. Did your portfolio barometer allow you to avoid this downturn? In general, do you avoid the October timeframe since there is usually a downturn during this period?

Thanks,
Steve

Wednesday, 7 December 2005 - 9:40 PM CST

Name: Robert Freedland
Home Page: http://bobsadviceforstocks.tripod.com/bobsadviceforstoc

Steve,

Quite frankly I am not sure. I do not try to anticipate what a seasonal influence will be. I let the market direct my trading in my account literally. Hopefully, if stocks retrace during some of the times of year, I will be adequately ahead that they won't hit sell points on the downside and will instead move ahead once again when this period has passed.

Bob

Friday, 24 March 2006 - 12:11 AM CST

Name: mostlyllurking

Written with perfect hindsight.... You were right on target on this one, Bob. From $27, it moved up another $10, peaking around $37. Almost a 40% move... not at all bad!

Now HURC is back below $27 and looking sick. Have you any estimate for a Low to watch for to buy for another UP cycle?

[Do you look this far back in your comments, Bob?]

Friday, 24 March 2006 - 5:40 AM CST

Name: Robert Freedland
Home Page: http://bobsadviceforstocks.tripod.com/bobsadviceforstoc

Mostly,

I do receive notification when comments are posted. I have so many posts that I do not routinely scan the prior posts except when I review them a year or so out.

What you are talking about is not something I would be personally doing. That doesn't mean it isn't a good idea and might indeed be profitable for you but it isn't my own personal strategy.

That is, if I had purchased Hurco, I would have sold a portion when it hit a 30% gain, and then if it broke down under my purchase price I would have blown out the whole position. I have revisited stocks I have owned previously and on occasion repurchased them. Giant Industries comes to mind which I have owned twice, lost money twice, and the stock is higher than either of my past purchase prices :(.

I repurchase a stock if it is showing good momentum by showing up in the top % gainers list. I don't repurchase a stock just because it drops and is now a good "value". It still has to fit my criteria.

In addition, my purchases are signaled by sales of stocks on gains in my own trading account and then I restrict myself to stocks that are on the top % gainers list that day.

This rigid approach provides me discipline but also limits my shopping list.

I hope this answers your inquiry. Good-luck and please let me know what you chose to do and how it worked out for you! My strategy is rather idiosyncratic (or idiotic if you have that perspective!) but seems to be working well for me.

Bob

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