Stratasys: Nifty vs. Expensive

I'm not sure why it's taken me so long to finally pen a column on Stratasys (Nasdaq: SSYS). I've followed this company on a casual basis for more than 10 years, and I must confess that I've always thought that their rapid prototyping products were ... well ... nifty.

And that's a dangerous thing. It's really easy to let the sizzle of a story blind you to the absence of an accompanying steak. On more than one occasion, I've lived to regret buying a great story and telling myself that the numbers would eventually follow.

So what's the sizzle-to-steak quotient at Stratasys? Well, there's a real business here. Revenue was up 21% in the fourth quarter, operating income was up almost 34%, and net income was up 37%. Moreover, the company shipped 32% more units and continues to produce positive structural free cash flow (a.k.a. owner earnings).

I'm not so excited that growth in accounts receivable and inventories both outstripped full-year revenue growth by a meaningful margin. That's not always a sure-fire sign of doom, especially given the healthy chunk of cash on the company's balance sheet, but it is at least a yellow flag.

I consider Stratasys a play on general economic growth and development. For past customers ranging from Intel (Nasdaq: INTC) to Boeing (NYSE: BA) to Nike (NYSE: NKE), time-to-market is important in new product design; Stratsys' rapid prototyping can help these companies design better products more quickly.

Of course, it's not all that simple. Stratasys recently cut prices in the hopes of stimulating unit demand and eventual demand for high-margin consumables -- not unlike what Hewlett-Packard (NYSE: HPQ) has done recently in the printer market. That can be a tricky maneuver, though; investors should keep a close eye on the financials in the coming quarters.

In all, I still find Stratasys' products more interesting than its stock. Business looks pretty good, and I'll acknowledge that free cash flow models often don't work so well for smaller growth stories. Still, I don't see the shares as a major bargain today.

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