Symyx's Formula for Success: Wait

Who wouldn't want a piece of the next nylon or Kevlar, which were both invented by DuPont (NYSE: DD  ) ? That's basically what SymyxTechnologies (Nasdaq: SMMX  ) is all about -- helping very large companies expedite materials research in the hopes of getting a small royalty on the next major chemical discovery.

First things first -- let's look at fourth-quarter results. Reported revenue rose 22% on strength in service revenue and royalties. Assessing the earnings picture is a little more subjective -- Symyx's reported operating income rose 17%, but adjusting both years for amortization and acquired research and development reverses that to a negative 9% change.

The story at Symyx, though, isn't really about revenue or profits today, but rather what the future might bring. Akin to what Affymetrix (Nasdaq: AFFX  ) has tried to do in the field of genetic research, Symyx is pioneering high-throughput materials research in fields like petrochemicals, electronics, and pharmaceuticals.

And it's not as though major companies haven't noticed; the company already has considerable agreements with the likes of Dow Chemical (NYSE: DOW  ) and ExxonMobil (NYSE: XOM  ) . Along with generating revenue from research collaborations and the sales of tools and software to facilitate research, Symyx looks to secure small royalties on potential new discoveries that involve their technology or intellectual property.

What that means in real terms is that Symyx will see royalties from new products about to be launched, like a new catalyst from Celanese (NYSE: CE  ) , a polyolefin catalyst from Dow, and a lab instrument from Canon (NYSE: CAJ  ) , as well as a new sensor for use in oil exploration.

Certainly, the potential here is exciting -- companies in Symyx's target markets spend an estimated $10 billion or so per year in R&D, and a new catalyst or polymer can be worth hundreds of millions of dollars or more. But that's also the downside to the story -- it's really easy to get all hyped up about what products future R&D could bring, and it's easy to overlook the fact that most new products will have modest sales (in the $50 million or lower range) and that Symyx gets only a modest royalty (usually from 1% to 5% of sales).

This stock has been pretty volatile over time, and I actually see that as a good thing: It means there's a reasonable chance that it'll sell off back to a point where it gets attractive to me. I definitely like the moneymaking potential of industrial R&D but would prefer a price with a better balance between sizzle and steak.

For more Foolish thoughts on chemicals:

Dow Chemical is aMotley Fool Income Investorrecommendation. Click here to learn more about getting paid to invest.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 511484, ~/Articles/ArticleHandler.aspx, 10/25/2016 4:50:32 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 7 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

3/31/2016 4:00 PM
AFFX.DL $14.01 Down +0.00 +0.00%
Affymetrix CAPS Rating: **
CAJ $29.48 Up +0.14 +0.48%
Canon CAPS Rating: **
CE $71.75 Up +1.10 +1.56%
Celanese CAPS Rating: *****
DD $70.14 Up +0.44 +0.63%
DuPont CAPS Rating: ****
DOW $54.24 Up +0.14 +0.26%
The Dow Chemical C… CAPS Rating: *****
SMMX.DL $0.00 Down +0.00 +0.00%
Symyx Technologies… CAPS Rating: ****
XOM $86.91 Up +0.29 +0.33%
ExxonMobil CAPS Rating: ****