FSI International: Only For The Bravest Of The Brave

Price: $4.50

Forward P/E: 6.7

Earnings Growth: 95%

Projected Sales Growth: 55%

Market Cap: $176 million

Earnings ramping fast; no debt; up more than 300% in last 7 months.

Volatile earnings; volatile stock price.

FSI International, Inc.

designs, manufactures, markets, and supports equipment used in the fabrication of microelectronics.  The company primarily offers surface conditioning equipment that uses wet, cryogenic, and other chemistry techniques to clean, strip, or etch the surfaces of silicon wafers; and refurbished microlithography products to deposit and develop light sensitive films. 

Products include spray cleaning systems, which remove unwanted films and contaminants from the surface of semiconductor wafers at various stages in the microelectronic device fabrication process; single wafer cleaning systems that clean semiconductor wafers in a closed chamber and single wafer environment; cryokinetic processing systems, which remove non-chemically bonded particles from the surface of a microelectronic device; immersion cleaning systems that clean silicon wafers by immersing wafers in multiple tanks filled with process chemicals; and microlithography systems, which deposit polyimide resist and photoresist, light-sensitive, and etch-resistant materials, as well as develop the deposited material after exposure.

The company also provides system and subsystem upgrade packages, spare part kits, individual spare part components, robot refurbishment and replacement, and support services to extend the life of previously purchased and installed systems.

FSI International, Inc. sells under the ZETA, MERCURY, ORION, ANTARES, and POLARIS names, directly to the microelectronics manufacturers in North America, Europe, Japan, and the Asia Pacific region.  FSI International, Inc. was founded in 1973 and is headquartered in Chaska, Minnesota.

A couple of things to note right up front: Market cap (number of shares times price) is under $200 million.  This is a company.  Another telling number: this stock sold for 20 cents at the beginning of 2009 when the world seemed it would end.  And one more thing: the stock was trading at $1.70 last September.  If you're going to own FSII, check your seat belt and fasten it tight.

The reason for the recent run up is simple: earnings are blasting back.  After a loss of 46 cents a share in 2009, red turned to black and earnings per share finshed 2010 with a positive 39 cents.  Last year, they diminished to 21 cents.  This year, they're going to be up again.  Consensus estimate from 3 analysts is for 41 cents, almost double last year's total.  For 2013, they're going higher, to 68 cents. (Fiscal year ends in August.)  Next quarterly earnings (ends in May) should be 21 cents compared to 10 cents in last year's third period.  For the fourth quarter, expect 18 cents, more than triple the 5 cents of last year's fourth.

The company relied on 5 customers for 64% of revenues in 2011.  Foreign sales were 58% of the total.  Revenues were $96.88 million.  This year, look for $150.2 million, up 55%, then $173 million in 2013, up another 15.1%. 

Orders are picking up from major semiconductor customers after a slow start in the first quarter.  February sales were up 25% compared to last February.  Cost of goods sold also went higher, by 9.9% which was somewhat alleviated by a lower operating expense, down 3.7%.  When the quarter finished, earnings were down 30% from the previous year but still ahead of estimates.  Management recently raised guidance for revenues for the rest of this year, citing new orders and an increasing backlog.

FSII has no debt.  Its cash reserves sit at $22 million.  There are 2 new systems, Orion and Antares, that are being tested at large semiconductor manufacturers.  As the general global economy picks up, expect more electronics sales, which will flow through to FSII.

- Trailing P/E: 27

- Price to sales: 1.6

- Price to book: 1.77

- Operating margin: 5.79%

- Profit margin: 6.14%

- Return on equity: 7.2%

- Return on assets: 3.42%

- Cash: $21.35 million

- Cash per share: 55 cents

- Total debt: 0

- Current ratio: 4.34

- Book value per share: $2.44

- Beta: 2.62

- Total shares outstanding: 39.19 million

- Float: 34.61 million

- Held by insiders: .68%

- Held by institutions: 56.9%

- There is no dividend

There's a lot to like at FSII.  Just remember how volatile earnings and the price can be.  While everything looks very positive at the moment, the semiconductor industry moves in cycles.  Once it turns negative, it goes south fast.

- Company Web site:

- Ted Allrich

April 19, 2012