When Motley Fool co-founder Tom Gardner wrote a commentary titled "Be The Millionaire Next Door," one Motley Fool Hidden Gems pick he spotlighted was industrial laser manufacturer Rofin-Sinar
It didn't take a genius to see today's strong quarter coming. Last quarter, the company backlog was $72.8 million -- 2.7 months' worth of revenue waiting to be shipped. Well, get ready for more good news in the future: The backlog now sits at a record $84.6 million, up 16% from the prior quarter.
More impressive than those numbers is the 2-percentage-point increase in the net profit margin, which now stands at 9% of sales. Not only is that strong profitability, but it is also double the margin of competitor Coherent
Wall Street doesn't seem to be watching -- yet. Rofin-Sinar trades at an attractive 16 times trailing earnings -- far less than the 40 times Coherent commands. Based on analyst estimates, the stock is trading for 13.5 times this year's earnings and 12 times the following year's earnings. That's cheap for a company with growing free cash flow.
That cheap valuation isn't the result of a weak balance sheet -- the company is cash-rich after its secondary offering last year. It has also used some of that cash to buy two laser manufacturers, and based on the current quarter's performance, those moves clearly illustrate that the company can integrate new businesses without losing its moneymaking stride.
You can find the company's lasers welding major body parts at General Motors
So why is the stock down 15% today? It's hard to tell -- the company beat analyst-expected earnings per share by $0.02, and no downgrades were issued. Perhaps the market was expecting even more. From this Fool's perspective, however, the company's increasing margins, record backlog, and rising FCF make it a star of an investment.