Ultratech Inc. (UTEK) develops and manufactures products and provides services which are mainly used by semiconductor manufacturers. Therefore, the company's performance is expected to be highly sensitive to the semiconductor market. The company's performance has shown a substantial improvement over the years as its aggressive growth strategy has been received invitingly by the investors. The company's market capitalization currently stands at $1.0 billion. At the same time, the company has been adapting the new trends in the technology industry in order to further its growth. A report by Morningstar highlights the company's next generation laser as a key source of revenue growth in the coming years. The profitability and growth of the company have been reflected in recent years and through this analysis, I shall evaluate the company as a prospective investment opportunity for investors.
Since the beginning of May, the company's stock price has shown an upward trend as it increased from $29.13 to a current price of $36.62. This upward surge occurred after a strong decline in stock price over the previous month.
The above chart shows the change in stock price of Ultratech as compared to the S&P 500 index over a period of two years. In this period we see that the company's stock has outperformed the index by demonstrating an increase of 113.5% as compared to 46.22% increase in the index. At the same time, it must be noted that the company's stock price has shown a substantial degree of volatility over the recent periods.
Financial Performance and Growth
Over the years, the company has reported a consistent growth in earnings. The company's top line growth was hindered in FY09 but the momentum in revenue and earnings growth was regained in the following year.
The above chart shows the company's revenues, net income and profit margins for the most recent five quarters. The chart clearly shows that the company is operating at strong profit margins as the earnings of the company have been showing a consistent growth. This chart represents the performance of the company in just one year. The average revenue growth of the company in the past three years is reported at 34.8% as compared to the industry average growth of 15.5% for the corresponding period. The company's average net income growth in the past three years is recorded to be 180.9%. Similarly, the company is operating at strong margins as compared to the industry. The TTM operating margin of the company stands at 23.7% as compared to the industry average of 12.8% and the TTM net margin for the company is 20.6% whereas the industry is operating at a corresponding margin of 11.4%.
The above chart shows the company's total assets and return on assets since the beginning of FY09. Firstly, the total assets of the company have almost doubled in this period projecting a CAGR of approximately 23%. At the same time, the capacity to generate revenues have been kept intact as the return as assets has been kept at pace with the asset growth.
Along with the profitability and financial performance of the company, long term investors also show strong concerns regarding the company's stability as they are invested in the company's growth in the long haul. In order to address this perspective, a DuPont break down has been conducted.
Data Source: Morningstar
The above chart shows the breakdown of the company's return on equity into net margins, asset turnover and financial leverage. The company's return on equity has increased up till FY11. There are two important factors to be noted at this point. Firstly, the company's net margins have improved substantially over these years. Secondly, the company's return on equity is mainly driven by net margins and this return on equity is not dependent upon any unmanageable proportions of financial leverage.
The above chart shows the company's current ratio and debt to equity ratio since the beginning of FY12. The chart clearly shows that the company has maintained a strong liquidity position over the recent periods. At the same time, the company's capital structure is mainly based on equity as the proportion of debt has been extremely small. This shows the company's financial strength and stability.
Ultratech's drive to growth will be the major driver for the company's stock. It is amongst the few companies which possess strong upside potential due to their growth capacity and also demonstrates a high degree of financial stability. The business strength that supports the company's growth prospects is extremely important for investors as they aim to become a stakeholder of the company for the long run. Keeping in view the company's impeccable approach towards growth through adaptation of new technology and the high profit margins, I propose a buy recommendation for the long run investors. Due to these factors, Ultratech has the capacity to become a lucrative investment opportunity for long term investors.