NEW YORK (TheStreet) -- Hurco Companies (HURC) is a 46-year-old company working on a potentially disruptive product in 3D printing. On July 15, Hurco announced a filing of a U.S. patent application for an adapter, which turns CNC milling machines into 3D printers.
Three respectable 3d printing blogs are calling this adapter potentially disruptive technology.
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"We designed an additive manufacturing adapter that, in combination with proprietary Hurco control software, effectively turns a CNC milling machine into a 3D printer," said Gregory Volovic, President of Hurco Companies.
Hurco is an industrial technology company; it designs, manufactures and sells computerized machine tools for companies in the metal cutting industry worldwide.
The company is profitable, with 90 cents earnings per share in the first six months of this fiscal year. The average estimate for this year is $1.74 earnings per share. Hurco has beat estimates for the first two quarters this year. The balance sheet is strong, with $47 million in cash and $3.2 million in debt.
Valuation: While it is not known what the revenue potential is for this new product, judging by industry comments above it sounds like it has potential to increase sales and earnings for an already profitable company.
When we look at other 3d printing stocks:
Hurco has a price/sales ratio of only .98 and a 17.6 P/E ratio on current year forecasted earnings of the legacy CNC business, which does not account for future 3D product sales.
If I take the average price/sales ratio for DDD, SSYS and XONE, I get 11. If I take the average P/E ratio for DDD and SSYS, I get 58.
If Hurco had an 11 price/sales ratio on the $200 million trailing 12 months sales, that would be a stock price of $338.46. If Hurco had a 58 P/E ratio on the $1.74 forecasted legacy EPS, that would be a stock price of $100.92.
Again, this comparison does not account for potential 3D sales from what industry publications are calling a potentially disruptive product.
HURC is definitely a stock to watch after the recent announcement of the 3D printing product and potential future announcements, as Hurco is also trying to expand this invention to include numerous other additive manufacturing processes.
Hurco has a current market capitalization of approximately $200 million. There are approximately 6.5 million shares outstanding of which 75% is held by institutional funds and insiders, leaving a tradeable float of approximately 1.6 million shares. Low floats are a risk, as mentioned below. But this is not a penny stock. It was trading at $31.18, up 51 cents, or 1.66% at around 2 pm EDT.
This is not a fly by night company trying to enter a hot industry. This is an established, profitable company that may have just introduced disruptive technology to the 3d printing industry.
"Hurco has a long history of inventing technology that allows our customers to be more productive and profitable. This is yet another Hurco innovation making advanced technology accessible to a broad range of customers, Volovic stated.
Several leading industry publications were quick to comment of the significance of the new HURC 3d printing product.
Michael Molitch-Hou of 3dprintingindustry.com stated, "Many Makers in the 3D printing community have been working on their own, small-scale hybrid machines, capable of CNC milling or laser cutting with the simple change of a tool head. ...No desktop or workbench devices, Hurco's equipment could pave the way for a future where both 3D printers and CNC mills are a thing of the past.
Brian Krassenstein of 3dprint.com explained, "With tens of thousands, if not more, CNC machines owned by manufacturers worldwide, it is a shame that any of them would have to invest additional capital on high tech 3D printers. These 3D printers use mostly the same parts as a typical CNC machine, and work in much the same way. Hurco understands this and has taken the initiative to invent an adaptor, which they have just filed a patent application for.
Such a breakthrough could save manufacturers millions of dollars, as their current equipment can be re-purposed or co-purposed to include that of 3D printing.
Gary Anderson of 3dprintingstocks.com commented, "In news yesterday, Hurco Companies based in Indianapolis, Indiana announced they filed a U.S. patent for what may be disruptive technology which combines3D printing and CNC machining. ..."
Risks: As with any new product there is always execution risk. However, this may be mitigated by the reputation and existing customer base from 46 years of experience. Lastly, HURC only has a tradeable float of approximately 1.6 million shares. Low float stocks can be subject to extreme and rapid moves.
At the time of publication, the author was long HURC, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates HURCO COMPANIES INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate HURCO COMPANIES INC (HURC) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, increase in net income and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 6.2%. Since the same quarter one year prior, revenues slightly increased by 8.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- HURC's debt-to-equity ratio is very low at 0.02 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.49, which illustrates the ability to avoid short-term cash problems.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Machinery industry average. The net income increased by 11.1% when compared to the same quarter one year prior, going from $3.18 million to $3.54 million.
- HURCO COMPANIES INC has improved earnings per share by 12.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, HURCO COMPANIES INC reported lower earnings of $1.24 versus $2.40 in the prior year. This year, the market expects an improvement in earnings ($1.74 versus $1.24).
- The gross profit margin for HURCO COMPANIES INC is currently lower than what is desirable, coming in at 32.47%. Regardless of HURC's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 6.58% trails the industry average.
- You can view the full analysis from the report here: HURC Ratings Report