Is Stratasys Soaring?

When you think of a printer, companies such as Hewlett-Packard (NYSE: HPQ  ) and Canon (NYSE: CAJ  ) come to mind. But there are all kinds of printers, from giant-sized systems used in advertisements to tiny TransAct (Nasdaq: TACT  ) units found in slot machines. But if you want to be the coolest kid on your block, few are more impressive than Stratasys' (Nasdaq: SSYS  ) 3D printer system.

No doubt, with its rapid prototyping systems, Stratasys has the cool part down. But let's take a look at its latest results to see whether it's keeping it cool for shareholders.

For the fourth quarter, the company's revenues increased 28% to $19.4 million -- shipping 272 units for the period vs. the 226 units shipped in the same period a year ago. While its sales were up, profit margins dropped. The company blamed higher expenses from Sarbanes-Oxley and sales commissions for deteriorating margins that declined 10.2% to its fourth-quarter mark of 15.9%. Despite increased costs, Stratasys managed to haul in $2.3 million of net income -- up 52% year over year.

The latest quarterly earnings brought its fiscal 2004 year-end total to $9.1 million of net income -- an increase of 48% over fiscal 2003. Sales for the year were up 38% to $70.3 million. While the company struggled with margin pressure in the fourth quarter, operating margins improved to 18.5% for the year -- compared with the 17.2% level for 2003.

Fortunately, its fourth-quarter margin squeeze appears to be a one-time hiccup, since the company projects fiscal 2005 operating margins to come in at 20% to 22%. Stratasys also anticipates revenues to increase by 20% to 27% in a range of $84 to $89 million. Its earnings per share for 2005, before accounting for its stock options, are estimated to increase 26% to 33% to a range of $1.07 to $1.12.

Investors are hoping that Stratasys maintains stratospheric growth rates and goes beyond, since its stock valuation is nearing the mesosphere. With a clean balance sheet of $55.8 million in cash and no long-term debt, it carries an enterprise value of $231.9 million. The company is currently valued at 44 times its trailing-12-month owner earnings of $6.5 million -- a steep valuation that will require every bit of its 27% blended growth rate.

Stratasys' impressive results are keeping it cool for shareholders, but this stock's valuation may be too hot for many investors. Potential investors may consider buying a little bit in the mid-$20s to get a piece of the action, but wait for a discount price before taking a full position.

Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.