Laser Targets True Gem

The name Rofin-Sinar (Nasdaq: RSTI  ) may not roll off your tongue, but you may want to bookmark this Motley Fool Hidden Gems recommendation.

The manufacturer of industrial laser products just completed its 2004 fiscal year with a 25% gain in sales and a 112% gain in net income -- both record highs. The fourth quarter's net income increased 192% to $0.92 a share, trouncing analyst estimates of $0.50 a share.

Net sales were up a mere 1% for macro applications (45% of fourth-quarter sales). This market, where you would find the company's lasers welding major body parts for General Motors (NYSE: GM  ) and Ford (NYSE: F  ) , is showing weakness in capital goods spending.

In marking and micro applications (55% of sales), where the company's products are used by the likes of United Technologies (NYSE: UTX  ) and Cypress Semiconductor (NYSE: CY  ) , sales skyrocketed 58%. The expected growth reflects strength in the electronic and semiconductor industries (although the company's products are used for everything from jewelry to medical technology).

The company's $72.8 million backlog of orders indicates 2005 will be off to a strong start.

Following the company's secondary offering earlier this year, some of the cash was used to acquire two laser manufacturers and increase its ownership in another. Analysts have yet to recalculate 2005 earnings based on this quarter's blowout performance and these acquisitions, but all signs point to continued strong performance.

The company stock, trading at 15 times earnings, sells at a significant discount compared with competitors Excel (Nasdaq: XLTC  ) and Coherent (Nasdaq: COHR  ) . Given Rofin-Sinars stellar quarter, and its stock valuation, it is a surprise that the stock is trading down 6% today. Yes, the company is in a cyclical business, and it is indicating some weakness in the semiconductor industry. But, with its rock-solid balance sheet and widening technology base, the company is laser-focused on growth and profits -- and it's a real Gem.

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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.