Motley Fool Hidden Gems Watch List stock Hurco (NASDAQ:HURC) doesn't get a whole lot of respect on the Street. Though Hurco has quintupled the S&P 500's performance over the past year, it still gets coverage from just one analyst.
That's actually fine by us -- the longer our recommendations (official and, like the Watch List, otherwise) remain undiscovered on Wall Street, the more time our subscribers have to buy at bargain prices. But the lack of coverage does pose one dilemma: We go into every earnings season with little guidance from the "professionals" on what to expect. To help shed a bit of light on that subject today, I'll suggest a few items worth looking into when Hurco reports on its fourth-quarter and fiscal 2005 earnings tomorrow.
As I said, there's just one analyst following Hurco -- but not the same analyst who has followed it in the past. Patrick Winton of Sterne Agee & Leach initiated coverage of Hurco one month ago, and predicts the firm will report $0.55 per share in profits, on $33.6 million in revenue this quarter. Prior to Sterne Agee, one unidentified analyst, apparently no longer following Hurco, previously had it pegged for $0.26 per share.
Hurco itself has remained silent on the subject, offering no guidance in its fiscal Q3 earnings release and no earnings warnings or updates of any kind since. With so much uncertainty on the income statement side of things, therefore, this Fool is tempted to look elsewhere for guidance.
For instance, cash and debt. Over time, cash profitability tends to show up pretty clearly on a company's balance sheet in the form of rising levels of cash and equivalents. In Hurco's case, the company's cash hoard has risen sequentially in each of the past 10 quarters. Look for that trend to continue tomorrow. Look also for a continuation of the company's efforts to pay down debt; Hurco's long-term debt has fallen in every quarter of the past eight.
Finally, mind the inventories. As my Foolish colleague Jeremy MacNealy pointed out back in August, Hurco saw a marked slowdown in new-order bookings last quarter, in comparison with a very strong fiscal Q3 2004. That same quarter, Hurco broke with its recent tradition of letting inventories outgrow sales, and it reined in its inventory growth to no more than its 25% year-over-year growth in sales. If last quarter's bookings weakness should result in fewer sales than expected this quarter, make sure to confirm that inventories don't resume racing ahead of those sales.
Fool contributor Rich Smith does not own shares of Hurco.
