FSII FS Development Corporation II

I'm always looking for hidden gems. FSI International (FSII), a maker of wafer cleaning equipment, recently posted a big earnings surprise for the fiscal second quarter. This Zacks #1 Rank (Strong Buy) has both growth and value characteristics with a juicy PEG ratio of just 0.6.

FSI makes wafer cleaning equipment and provides support services to the integrated circuit (IC) and the microelectronics industry.

Founded in 1973 in Chaska, Minnesota, FSI has a market cap of $194 million.

FSI Beat by 80% in the Fiscal Second Quarter

On Mar 20, FSI reported its fiscal second quarter results and blew by the Zacks Consensus Estimate by 4 cents. Earnings per share were 9 cents compared to the consensus of 5 cents.

Sales jumped 25% to $38.5 million from $30.8 million in the year ago quarter.

Orders soared 123% to $51.4 million from $23.1 million a year ago as the company took market share for its ORION and ANTARES systems.

For the first half of the fiscal year, orders rose 34% to $74.4 million from $55.4 million in the first half of 2011.

Inventory fell to $42 million from $48.6 million at the end of fiscal 2011 as the company shipped $48.8 million in the second quarter.

Cash Is King

I love companies that have great balance sheets.

At the end of the second quarter, FSI had $23.8 million in cash, cash equivalents, restricted cash and long-term securities. It generated $4.1 million in cash from operations in the second quarter.

To top it off, the company has no debt.

Guidance Is Still Bullish

Looking out to the fiscal third quarter, the company is still seeing a lot of order and revenue momentum. It is operating on all cylinders.

FSI expects third quarter revenue to exceed $50 million, which is much higher than the prior quarter of $38.5 million. This would also be nearly double the revenue in the third quarter of last year when it was just $26 million.

Analysts Are Also Bullish

Not surprisingly, given the strength of the quarter and the third quarter outlook, the analysts have been raising estimates for both Fiscal 2012 and 2013.

3 estimates have risen for fiscal 2012, pushing up the 2012 Zacks Consensus Estimate to 41 cents from 26 cents.

That is earnings growth of 94% as the company made only 21 cents a year ago.

Fiscal 2013 looks equally as hot. 2 estimates have moved higher and 1 lower in the last week. The fiscal 2013 Zacks Consensus Estimate has risen to 68 cents from 59 cents in that time.

That is further earnings growth of 67%.

Shares Near 2-Year High

Shares were a real bargain during last year's sell-off. They have since rebounded to nearly 2-year highs.

Yet, there's still plenty of value.

FSI has a forward P/E of 12.6 which is under the average of the S&P 500 of 13.5.

In addition, it also has a solid price-to-book ratio of 2.2. I consider a P/B ratio under 3.0 to be indicating "value."

FSI is a high growth value stock with cash on hand and no debt. What more could a value investor ask for?

(P.S. The company also has about a dozen job openings on its web site for anyone who is interested- including positions for new engineering graduates.)

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at @TraceyRyniec.

 
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