Fuel Systems Solutions: Time to Load Up

FSYS has fallen out of the sky - literally. Its previous rocket ship expedition is history, as its shares touched the $60 area last August, only to self destruct back to the $10 area, exacerbated by a less than stellar fourth quarter earnings report. This meltdown has presented a stunning buying opportunity, as FSYS will rise again, after a brief pit stop to refuel. At today’s price you can pick up the shares at the same price the company was selling before it put together a string of four tremendous earnings reports . The market is looking at FSYS like this earnings growth never occurred, but it did. To illustrate the magnitude of its success: 2008 earnings almost tripled from 38 cents to $1.44, while sales increased a dazzling 44%, from $265 million to $383 million.

The stock is way cheap again: FSYS is on sale, and it’s not just a half-off sale, but more like an 80% clearance event. The stock’s implosion presents a compelling value, too good to pass up. FSYS is now selling at a skinny multiple of about five times 2009 earnings estimates of $2.06. Its balance sheet is pristine with $26 million of cash sitting on the books, and only $4.6 million in debt. The shares are also trading near book value.

Analysts sour: Janney Montgomery Scott just downgraded from buy to neutral (way too late to the party on that one) while Craig-Halther Capital reduced its one year price target from $58 to $30. I think the $30 target is a bit optimistic, but $20 is a no brainer, especially if the price of crude starts to firm up, and you know it will.

The shares are way oversold: They have simply come down too fast in too short of a timeframe and are due for at least a “dead cat bounce” as shorts cover to book profits and bargain hunters start to accumulate. The stock has a significant short position of almost 6 million shares or 40% of its outstanding shares. Its short interest ratio of 9 is extremely high. The extreme negative sentiment exhibited by its high short interest, makes it a potentially lucrative short squeeze play.

Bottom line: Take a look at FSYS’s five year graph, there is tremendous support visible near the $10 level and the shares are pretty much already there. The stock could easily bounce back to the $15-18 vicinity by the end of the month. There is no doubt the stock currently offers a favorable risk reward ratio. There is no reason not to be a buyer at this point, if you want to take advantage of the next ride up. Translation: “Time to load up”!

Disclosure: Long FSYS.

Comments

[fran:]

AUTHOR--

you present factual history of events and cite analysts positions. but nowhere do you cover the driving reasons for past success nor the driving forces behind expected future growth. what are these?

in the words of the author of "RULE ONE"[DON'T LOSE MONEY]. what's/where's the MOAT????

SHALLOW!

Mar 10 12:57 PM

[Mark Krieger:]

read the company's press release. This stock moves when oil rises. Oil has no where to go but up at these levels. People loved this stock @$60 , but hate it at $10-Go figure-it should be the other way around--The shares are on sale--time to buy em..buy low sell high, not the other way around

biz.yahoo.com/pz/09030...

Mar 10 01:06 PM

[koolsool:]

FSYS had a real bad quarter & the natural gas for transportation is something Obama does not seem to favor. FSYS is a fine company, but I understand the selling. If one did not own the stock when they reported, it is a buy here. But if you rode it down from $28 like I did, it is hard to get behind the stock now.

Mar 10 10:55 PM

[Tone:]

Taken from Navellier Growth website:

Fuel Systems Solutions (FSYS) announced earnings last night and the news wasn’t good. First, let me apologize for recommending this stock. Needless to say, I’m very upset with this company.
Here are the details: FSYS, a maker of alternative fuel components, posted lower quarterly earnings and forecast weak revenue for 2009 and its shares slumped by as about 25%. The company posted a fourth-quarter net income of just $641,000, compared with $4.8 million a year earlier. Equally troublesome was that Fuel Systems forecast revenue of $330 million to $360 million for 2009 when analysts had expectations of $429.2 million. That kind of guidance is just inexcusable.
So how could an A-rated stock like FSYS post such dismal earnings? Well, the quarterly results included $5.9 million of additional provisions and expenses—that’s 22% more than the profits from this period last year. Such big losses erased all the good things this company did. These losses were due mostly to currency hedging and exchange rates. Since FSYS does a lot of business overseas, it relies heavily on a “currency tailwind” created by a weak dollar and a favorable exchange rate with other currencies. The dollar has had an artificial rally recently, and unexpectedly ate into this stock’s profits.
Looking forward, I do not expect the greenback’s artificial strength to last. The U.S. dollar’s rally has been prompted by the market woes as investors look for a safe haven. After gold, the greenback has always been a good place to hide in rough times. But clearly this flight to the dollar won’t last, because President Obama’s massive spending spree is causing America’s deficit to soar and is calling into question just how “safe” a currency the greenback really is.
Unfortunately, the future is irrelevant to FSYS—the damage has already been done. That’s why I want you to sell FSYS. Whether you unload the stock today or in the coming weeks on a market bounce is merely academic, because I simply don’t believe the stock will ever get back to its previous highs in 2009.
I won’t sugar coat what’s happened with FSYS—I know selling this stock at such a loss is going to hurt, and I sincerely apologize. I was counting on a standout earnings report, but these one-time expenses ruined the quarter. I’m not going to make any excuses for what happened with FSYS, but I do want you to know that this is an extremely rare occurrence that has been fueled by a once-in-a-lifetime bear market.

Mar 10 11:15 PM

[jpau:]

What's the great mystery. This company was probably as vulnerable as any company could be to a complete collapse in the price of oil. Add to that the reduction in both capex and consumer spending, and it's no surprise that FSYS has been crushed. I would hardly call it inexcusable, unless one can show that the majority of the market saw this crash coming.

Mar 11 03:50 PM

[middleclass...:]

I listened to the conference call and it wasn't good. These guys aren't going to grow their revs in 09 and 2010 is a wait and see approach. This company is levered to auto sales (which aren't selling) and levered to a lot higher oil prices (I believe $80 was mentioned on the call), which we may not see in 09? I think you can put your money elsewhere for the time being and wait and see for an earnings revision to the upside.

Mar 11 08:23 PM

[longtermstocks:]

Hydrogen, the holy grail of energy, is the simplest and cleanest of all fuels.

Mar 12 02:12 AM