It's relatively easy to slap a negative view on a stock and back it up with a mixture of facts and opinions, but it's a totally different ballgame predicting that a company may go belly up. Ultimately, I don't have a crystal ball or a time machine, so I can only go off the information a company puts out in its press releases -- and one from last night from this company simply reaffirmed my probable diagnosis of bankruptcy.
Normally a company with $348 million in cash, trading at book value, and carrying no debt would find itself littered across numerous value portfolios. Notice I said normally? This isn't the case if the company is FormFactor
FormFactor has been in absolute free fall since 2007, producing 12 straight quarterly losses and seeing full-year revenues erode from $462 million to $189 million in just three years. Quarterly results released last night highlighted an additional $25 million in cash burn during the fourth quarter, as well as a renewed expectation of losses to come. The company also saw its CEO and CFO step down within the past year. Rather than focus on future growth, the only goal management seems to have at the moment is getting its costs in line so it can turn a gross profit with $50 million in quarterly revenue. FormFactor keeps setting the bar low and amazes investors by constantly missing even those expectations.
The company's guidance called for revenue to be very weak in the first quarter on the back of weakened DRAM prices and earnings to be hampered by an endless sea of inventory write-offs. More importantly, the cash burn rate is expected to remain high at $21.2 million to $22.5 million in the first quarter. If FormFactor continues to use cash at this rate, it will have completely burned through its reserve in a shade over four years from now. The company simply has no grasp of how to control its inventory levels despite having high-profile companies Intel
Some investors see value in having $6.88 in cash with no debt, especially from an acquisition perspective, but I'd like to know what company is going to pay a premium to buy and attempt to integrate FormFactor's failing business model. The management shake-up and cash burn rate seem like more than enough to signal rivals to stay away.
FormFactor will need to show incredible inventory and cost discipline if it hopes to return to profitability and prove me wrong. In the meantime, the sands of time appear to be falling into place and FormFactor's fate seems clear to me.
Only time will tell if FormFactor will fly or die, but I'd love your opinion on the company. Feel free to share your thoughts in the comments section below!
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Fool contributor Sean Williams does not own shares in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong. FormFactor is a Motley Fool Hidden Gems picks. Intel is a Motley Fool Inside Value pick. The Fool has bought calls on Intel. Motley Fool Options has recommended a bull call spread position on FormFactor and has recommended buying calls on Intel. The Fool owns shares of FormFactor and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy which never misses expectations.