FSI International For Risk/Reward

Nov.29.11 | About: FSI International, (FSII)

There are not many stocks in the current market that one could easily say will double. In fact, depending on the currents of the market, it is possible that more stocks will be cut in half than double. That being said, one potential prospect for those looking for a little excitement in their portfolio is FSI International (NASDAQ:FSII).

The Story At FSI International

This Minnesota based company works in the technology sector designing equipment that is used in the fabrication of microelectronics. While it is not typically recommended to invest in a company doing something that you do not fully understand, FSII may be worth an exception.

The stock currently trades at $2.32 per share as of the time of this writing. This is a company that has a market cap of $93 million. Naturally, companies with a market cap under $100 million or even under $250 million tend to have higher betas. Indeed the beta for this stock is 2.43. Those who are looking for a nice secure investment do not want to tie up their money with FSI International. However, some find a little risk to be glamorous, and it is certainly potentially profitable. With that in mind, let's take a look at the reasons why FSI International could double in the next year to 18 months.

The Amazing Growth Potential

Starting right off the bat, the five year expected earnings growth of this company is 20%. This is not incredible in and of itself. After all, there are plenty of small cap stocks that have this growth expectation or more. That being said, a 20% growth rate is nothing to sneeze at in this market.

FSI International is looking at a growth from an expected $0.13 per share in 2011 to an expected $0.36 per share in 2012. Given the 20% per year expected average for the next five years, one can easily see how the earnings could skyrocket.

FSI International has a track record of beating earnings (despite the latest quarter missing by two cents). This is obviously a good sign of progress being made at the company, but there is something more to note. Even if FSII were to miss earnings projections for next year by a full $0.06 on the year (an unlikely scenario), then it would still be posting earnings of $0.30 for the year. At $0.30, the stock is only trading at a price to earnings ratio of 8. A PE of 8 is just respecting a growth company enough, particularly one that is now starting to have significant and positive earnings growth.

Some Risks

No investment is completely free of risk. Rather than pretend that risks do not exist, it is better to know what those risks are. In the case of FSI International, risks include the fact that there is an average daily trading volume of only about 400,000 shares. It can be difficult to liquidate a large position in the stock if need be. Since the stock trades at only $2.32 per share, even a few thousand shares is not a large position. Therefore, it is probably best to buy and sell out of this stock slowly.

The latest earnings report showed a miss for this company by $0.02 per share. This miss has some investors headed to the door. Earnings misses are never a good sign. Fortunately, the misses by FSII have been minimal and rare.

FSII is a good bargain at these levels. It is unlikely that the stock will trade much lower barring a huge economic meltdown. The bigger risk is that the stock trades sideways. With all of the potential for a double up at FSII, I believe that it is a good idea to start buying in now. It may not be so cheap next year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.