1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Holly LaFon
Holly LaFon
Articles (7467) 

Third Avenue Management Comments on Rofin-Sinar

October 02, 2012 | About:

Followers of the Fund will remember that a small position in Rofin-Sinar Common (NASDAQ:RSTI) was initiated during the April quarter2. That position became much more meaningful in the July quarter. Additional shares of Rofin-Sinar were purchased as the discount to our estimate of net asset value widened and became more attractive amidst broader macro and near-term earnings concerns. In our April letter, we noted simply that Rofin-Sinar is an "industrial capital equipment company." In plain English, the company makes lasers and parts for lasers – lasers for cutting, lasers for welding, lasers for marking materials and lasers for medical equipment.

With one of its two headquarters in Germany3, cyclical end markets, more than 40% of sales from Europe and a third from Asia, there is plenty to dislike in the near-term for topdown investors as macro concerns and uncertainty swirl. In a bottom-up analysis, however, there is much more to like for investors with a time horizon beyond a year or two:

• the balance sheet is rock-solid with about 19% of the company's market cap as net cash and a history of generating excess cash;

• the company has been profitable every year since listing publicly in 1996;

• management has an impressive track record of compounding revenue and earnings at double digit rates over the past 10+ years;

• a service and parts business provides a base of highermargin recurring revenue;

• shares trade at only a slight premium to book value, while returns on equity have averaged 10%+ as a public company;

• application expertise and a global support network provide differentiation for products operating in demanding manufacturing environments;

• prospects for attractive longer-term business growth are reasonable, as lasers take share from more traditional means of cutting, welding and marking materials; and

• the current market valuation appears to offer limited downside over a reasonable timeframe, yet represents a meaningful discount to precedent transactions in a consolidating market.

In sum, Rofin-Sinar has been a very well managed business with an expanding, albeit cyclical, market opportunity. If past is prologue, management is likely to continue compounding value for shareholders at attractive rates, even as a given quarter or year may fall short of the earnings capacity and longer-term business potential.

From Third Avenue's third-quarter letter, by Curtis R. Jensen, chief investment officer and portfolio manager of Third Avenue Small-Cap Value Fund.

Rating: 2.8/5 (5 votes)


Please leave your comment:

More than 500,000 people have already joined GuruFocus to track the stocks they follow and exchange investment ideas.

Performances of the stocks mentioned by Holly LaFon

User Generated Screeners

Open Mind LearningSME UNDER 2BN
pbarker46Begin here 3
tlimScreen 2 (FCF Filter)
tlimScreen 1 (NI Filter)
rossgivensTweedy Brown
ntelumPAUL SALES 30
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)