Why Cimatron Group Is A Stock To Own Now

Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Recent pull backs may not be the last in the near future, but still offers investors an exciting opportunity to buy Cimatron (CIMT), a fast growing 3-D printer company. The firm has been rallying of late, after sitting still for most of 2012. The company, based out of Israel, will be reporting Q4 earnings around February 7th. CIMT is expected to continue its revenue and earnings growth, while it continues to invest in its own research and developing while also expanding into new markets, specifically in the Far East, as described by its 2011 Annual Report.


"Migration to Far East. Many mold, tool, die and fixture makers as well as discrete part manufacturers have migrated or intend to migrate their operations to markets in the Far East, such as China, in order to take advantage of the relatively lower cost of labor available in those markets for the manufacturing activities. We anticipate that this migration will continue and have expanded our operations in Asia, including in China, South Korea and India, in order to increase our share of those growing markets."


Strengthening Financials:

CIMT has been successfully growing its business and strengthening its financials in previous quarters and years.

Below depicts year-over-year results for the firm from CIMT's Fiscal Year 2011 Annual Report

<table> <tbody> <tr> <td> </td> <td> </td> <td> </td> <td> </td> <td> <p>2011</p> </td> <td> <p>2010</p> </td> <td> <p>2009</p> </td> </tr> <tr> <td colspan="4"> <p>Consolidated Statement of Income Data:</p> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td> <p>Revenue</p> </td> <td> </td> <td> </td> <td> </td> <td> <p>40714</p> </td> <td> <p>36074</p> </td> <td> <p>32957</p> </td> </tr> <tr> <td colspan="2"> <p>Cost of Revenue</p> </td> <td> </td> <td> </td> <td> <p>5383</p> </td> <td> <p>5873</p> </td> <td> <p>6186</p> </td> </tr> <tr> <td colspan="2"> <p>Gross Profit</p> </td> <td> </td> <td> </td> <td> <p>35331</p> </td> <td> <p>30198</p> </td> <td> <p>26771</p> </td> </tr> <tr> <td colspan="4"> <p>Research and Development costs, net</p> </td> <td> <p>6739</p> </td> <td> <p>6014</p> </td> <td> <p>5736</p> </td> </tr> <tr> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td colspan="4"> <p>Income (loss) after income taxes</p> </td> <td> <p>2611</p> </td> <td> <p>1565</p> </td> <td> <p>-30</p> </td> </tr> </tbody> </table>

Values in U.S. Dollars

<table> <tbody> <tr> <td colspan="3"> <p>Consolidated Balance Sheet Data:</p> </td> <td> <p>2011</p> </td> <td> <p>2010</p> </td> <td> <p>2009</p> </td> </tr> <tr> <td colspan="2"> <p>Cash and Cash Equivalents</p> </td> <td> </td> <td> <p>11787</p> </td> <td> <p>10221</p> </td> <td> <p>6684</p> </td> </tr> <tr> <td> <p>Total Assets</p> </td> <td> </td> <td> </td> <td> <p>34522</p> </td> <td> <p>34901</p> </td> <td> <p>32680</p> </td> </tr> <tr> <td> <p>Total Liabilities</p> </td> <td> </td> <td> </td> <td> <p>17390</p> </td> <td> <p>17716</p> </td> <td> <p>16581</p> </td> </tr> </tbody> </table>

Values in U.S. Dollars

As seen in the above tables with data taken from CIMT's annual report, the firm has been growing revenues, while reducing expenditures, even while growing total R & D expenses vital for survival in a growing field and in a global marketplace. CIMT has been able to strengthen its balance sheet by expanding its total assets while only marginally increasing its total liabilities. The firm's revenue growth should continue to grow as it broadens its services and product offerings throughout Israel, Europe, Asia, North America, and the rest of the world. Its products and services help make manufacturing easy, inexpensive and time efficient. In a competitive environment, businesses look for these qualities in a product and service to help their business run better.

Below highlights quarterly information from Cimatron's 2012 Third Quarter Reporting and continues to demonstrate growth and a steady ascent in the CAD/CAM marketplace.

  • 3% year-over-year revenue increase on a constant currency basis in Q3 2012
  • 27% year-over-year non-GAAP operating profit increase in the first nine months of 2012
  • $5.1M positive cash flow from operating activities in the first nine months of 2012, excluding a one-time payment of $2.5M to the Office of Chief Scientist in the Israeli Ministry of Industry, Trade and Labor (OCS)
  • Dividend Declared of NIS .41 (approximately $.105)/share

According to the quarterly presentation, CEO Danny Haran [former executive at Comverse (CMVT)] reported growth was strongest in North America, Germany and Italy. He stated although Q3 is the firms weakest typically, this quarters success signals strong outlook for quarters to come.

Geographic Developments:

<table> <tbody> <tr> <td colspan="3"> <p>Breakdown of Revenue</p> </td> <td> </td> <td> </td> </tr> <tr> <td colspan="3"> <p>Geographical Region</p> </td> <td> <p>Products</p> </td> <td> <p>Services</p> </td> </tr> <tr> <td> <p>Europe</p> </td> <td> </td> <td> </td> <td> <p>40.1%</p> </td> <td> <p>56.7%</p> </td> </tr> <tr> <td> <p>Israel</p> </td> <td> </td> <td> </td> <td> <p>2.7%</p> </td> <td> <p>2.2%</p> </td> </tr> <tr> <td> <p>Far East</p> </td> <td> </td> <td> </td> <td> <p>20.9%</p> </td> <td> <p>10.0%</p> </td> </tr> <tr> <td colspan="2"> <p>North America</p> </td> <td> </td> <td> <p>33.4%</p> </td> <td> <p>30.1%</p> </td> </tr> <tr> <td> <p>Other</p> </td> <td> </td> <td> </td> <td> <p>2.9%</p> </td> <td> <p>1.0%</p> </td> </tr> <tr> <td> <p>Total</p> </td> <td> </td> <td> </td> <td> <p>100%</p> </td> <td> <p>100%</p> </td> </tr> </tbody> </table>

The above chart uses data from CIMT's 2011 Annual Report. The current sales environment is heavily based in North America and Europe. The Far East purchases a high percentage of products from the company, but has yet to adopt the servicing role of the firm as other regions have. This will be a growth opportunity for the firm over the coming quarters, along with expanding its operations outside of Europe.


CIMT is still a micro-cap company, only having a capitalization of approximately $70million. Being such a small firm, the company has many competitors ranging from other micro-caps including 3D Systems Corp. (DDD) Stratasys (SSYS) and Organovo (ONVO.PK) to large-cap companies like Dassault Systemes SA (DASTY.PK). Each company has its only specialty in this fragmented market place and each has room to grow in this new space. Some firms may be able to merge or acquire one another throughout the course of 2013 in order to leverage new geographic locations, new untapped markets, and collaborate and save on R& D. 2013 and beyond will be a strong and developing year for many in this marketplace.


CIMT will face challenges. Challenges include selling to new regions, ever fluctuating currency rates, new competitors, and ever changing regulatory climates worldwide. CIMT is in prime position as a growing company to develop and build its unique product line and service. Today companies are looking for business partners like CIMT to be able to save time and money. With a large mostly untapped market selling to a retail purchaser instead of only manufacturers and businesses on the horizon for many 3-D printing companies, CIMT should be bought ahead of earnings, which should continue to show growth throughout its business.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus