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Strategies & Market Trends : Value Investing
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From: A111111/14/2022 6:36:05 AM
   of 78752
 
Faro Technologies (FARO) could be an interesting turnaround company.

Large part of the thesis is the CEO. Michael Burger, the CEO, is specialised in turnarounds.

His history:

He turned Merix Corp from a loss making company in 2007 to profit making in Q2 2010 after the effects of the FC. Not an easy situation. Especially when Merix Corp generated less in that quarter than previous ones, not realising the effect of EoS.

Next was his job at Cascade Microtech; another FC turnaround in 2010. Through cost reduction and value added acquisitions, the company got acquired in 2016 for $21/share. Buying when Michael Burger joined in 2010 at $4/share, you get a 5x in 6 years.

The same story with Electro Scientific Technologies. Joined a loss making company in 2016 when the company was worth $4/share only to be acquired in 2019 for $30/share.

Now at FARO, shareholder return is taking much longer because of Covid. But we are seeing the same formula to his previous jobs. We see some catalysts and expect the company to pick up in mid 2023 depending on demand side (which is very uncertain right now). Introduction of new products and improving receivables quality and inventory management. Adjusting NI and EBITDA for one off expenses, this company is actually making profit.

This is not the most logical thesis, but it's hard to look past a CEO turning around two unprofitable companies in the printed circuit board semiconductor industry during the FC.

Definitely a risky company to buy. I would recommend a small position if you ponder in this company and increase position as they scale.
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