Fusion-io is a Gem of a Long Term Investment
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Fusion-io (NYSE: FIO) is a computer software and hardware systems company that produces next generation data storage memory platforms. As opposed to a traditional, centralized approach to data management, Fusion-io offers a decentralized platform that reduces the complexity and cost of often underutilized assets. Long term growth for this industry and this stock in particular is incredible. But, at the same time, an investor needs to understand there is a lot of volatility in the tech industry, which translates into price swings that may have no bearing upon the company’s potential growth. The recent move in FIO may offer a great entry point.
When you have a company like FIO, you must believe that there are repercussions when the main client base is also struggling. It has been a year since its IPO, and even with the recent bottom, it is still up about 9% from the year before. Just recently, JP Morgan cut prices for hardware companies, including Apple and Hewlett-Packard, citing weak IT spending in Europe, the Middle East, and Africa, uncertain growth in China, and pressures from a strong U.S. dollar. These price target corrections are not a knock on the companies; these changes are caused by macroeconomic conditions.
It makes sense then that Fusion-io would also either struggle or have to readjust its projections.
FIO’s journey down started in mid-March, at a high of close to $34 before it dropped to $21. We have seen its stock trade down almost 30%, and the earnings reports from last quarter contributed to that in a small way. But this is a company with very high double digit revenue growth projected in the upcoming year. Though the fourth quarter of this year is not expected to be spectacular, FIO is projected to grow by 30% in the third! The company as a whole has done an excellent job maintaining a substantial gross profit margin in excess of 50% of revenues.
When you think of Fusion-io you need to think beyond our present conditions. As things change, this company will grow. FIO recently announced that it will make Cisco (NASDAQ: CSCO) a new customer, putting its ioMemory in the hardware giant's servers. Cisco Systems will get on board with Fusion-io's flash storage modules later this year, becoming the latest server maker to offer the technology that is already available in servers from IBM, Dell and Hewlett-Packard.
Combining solid-state memory and proprietary software to help servers run more effectively and improve utilization, FIO meets the needs of companies like Facebook, which has to crunch incredible amounts of data for its customers to compete at today's levels. This is one reason FIO will continue to grow as economic conditions turn around.
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