Is This Hyperfast Memory Maker Worth Your Money?

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All investors have to ask one question before they add a stock to their portfolio: "Is this a good buy right now?" Today we'll take a closer look at one company that has many would-be investors wondering just that. Is Fusion-io (NYSE: FIO  ) a good buy? There's a ton of information we can dig into for an answer, so let's see what we can discover.

Tracking the trends
One way to find out how the market views Fusion-io is to look at its stock performance as compared with its key metrics, such as revenue, net income, and free cash flow. Since Fusion-io is a relatively recent entrant to the public markets, we'll have to see whether that short history lines up with the company's progress from earlier dates. Let's start with Fusion-io's post-IPO performance:

FIO Total Return Price Chart

FIO Total Return Price data by YCharts

Fusion-io's been rather volatile, trading in a wide range over the past year. The company is currently unprofitable, but it has several solid stats in its favor. For one thing, top-line growth has been explosive:

Metric

Current Result

3-Year Cumulative Change

TTM Revenue $359 million 897.2%
TTM Gross Profit $200 million 900%
TTM Net Income ($6 million) 81.3%
TTM Free Cash Flow $11 million 125.6%
Total Debt N/A N/A

Sources: Morningstar and company press release. TTM = trailing 12 months.

In addition, although net income is still negative, it has been moving in the right direction. Free cash flow has moved into positive territory, which bodes well for the future, since it makes Fusion-io less likely to require dilutive secondary offerings to fund its expansion. The company's share count has increased modestly, but it's within reason for a young and rapidly growing enterprise. A complete absence of debt is also good to see.

Looking ahead
Fusion-io is such a young company that Wall Street's analysts haven't made a lot of calls yet. However, The Motley Fool's CAPS system has tracked several calls, including three by Jim Cramer, two of which trounced the market in the past, and one that's an outperform call just a couple of weeks old. The company has offered its own guidance, and we also have some Foolish CAPS players who have been brave enough to make a call.

Forward Period

Expected Result

Upcoming quarter margins* Gross margin: 56% to 58%. Operating margin: 10%
Upcoming year (fiscal 2013) margins* Gross margin: 56% to 58%. Operating margin: 12%
Upcoming year (fiscal 2013) revenue $521 million to $539 million
Fiscal 2013 capital expenditures $20 million to $25 million
Motley Fool CAPS % outperform and rating (out of 5) 90.9%, ****

Sources: Company press release and Motley Fool CAPS.
*Anticipated results presented as non-GAAP financial measures.

These gross margins are in line with the current fiscal year's result of 56%. A positive operating margin would be a nice turnaround from the negative result that came from greatly expanded spending on both personnel and R&D. The lack of real-dollar figures may be off-putting, but Fusion-io's fortunes can quickly improve by landing even one major new customer.

Speaking of new customers, Fusion-io's big summer news (besides its big fiscal-year finish) was that it had signed with Cisco (Nasdaq: CSCO  ) to supply ioMemory for the networking giant's Unified Computing System servers. That will help diversify the Fusion-io's highly concentrated customer roster -- Apple (Nasdaq: AAPL  ) , Facebook (Nasdaq: FB  ) , and Hewlett-Packard (NYSE: HPQ  ) amounted to 72% of the company's annual revenue. However, Facebook and Apple together produced 65% of Fusion-io's total revenue a year ago, so their impact seems to be weakening. That's certain to continue as Cisco starts buying Fusion-io's wares.

Fool analysts John Reeves and David Meier have been on board with this company since its earliest days and have built their bullish pitch around the speed of Fusion-io's memory products. Everyone won't need hyperfast memory, but the companies that thrive on keeping their users connected see obvious benefits to hardware that keeps the back-end processing time of server requests to a minimum. Fusion-io's impressive growth, and its gradually diversifying list of top tech customers, are two positives in my eyes, and for that reason I'll be placing an outperform CAPScall on Fusion-io today.

If you're looking for ways to stay on top of Fusion-io's future, you might want to keep a close eye on its two biggest customers. The Motley Fool's developed an all-new premium research service, with analysts dedicated to both Facebook and Apple. Each subscription comes with a year of regular updates on your favorite company's major moves and key initiatives, with detailed analysis to help you make smarter investment choices. What are you waiting for? Sign up today!

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter, @TMFBiggles, for more news and insights.

The Motley Fool owns shares of Facebook, Fusion-Io, Cisco Systems, and Apple. Motley Fool newsletter services have recommended buying shares of Apple and Facebook and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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7/23/2014 8:00 PM
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