Recent Stock Performance
Over the past two years, Cray Inc. (NASDAQ:CRAY) has generally outperformed the broader market. After a prolonged period of stagnation during the post-crisis recession, the company’s stock broke out of its trading range in mid-2012 and has been on a nearly uninterrupted ascent ever since. From an April 2012 low of about $7 per share, Cray’s shares rose to a high near $23 per share about a year later and now sit close to $20 per share. Although the company’s price movements have correlated fairly strongly with those of the broader market since its recent high, it does appear to be maintaining its relative strength. This behavior could bode well for technical and short-term investors. Long-term investors should be encouraged that favored technology and new-economy stocks like Tesla Motors Inc (NASDAQ:TSLA) have exhibited similar price movements in recent months.
Differing Analyst Opinions
A convincing consensus has yet to emerge around Cray. On one side of the fence, enthusiastic analysts argue that Cray’s strong fundamentals and impressive profitability have positioned it for further growth. These observers also argue that the company is well-positioned to take advantage of the ever-growing need for data storage and high-speed servers.
On the other hand, many observers are convinced that the industry’s dynamics will favor larger, better-established firms over Cray. Although star analysts like Jim Cramer do not argue with the “expanding data storage” premise, they do take issue with Cray’s positioning. As these observers see it, the best that Cray can hope for is a favorable buyout offer from a larger competitor.
Strengths and Weaknesses
Cray’s most obvious strengths lie on its strong balance sheet and earnings report. In addition to its attractive headline numbers, its “background” metrics look good as well. For instance, its cash conversion cycle has been steadily shortening over the past year and now looks far more attractive than that of its peers. Since a quick cash conversion cycle facilitates capital allocation and makes it easier for firms to adjust to changing realities, this is an unfettered positive for Cray.
Some argue that Cray is simply too small to compete with its larger rivals. While this could turn out to be true, it is important to note that companies like International Business Machines Corp. (NYSE:IBM) seem very expensive at the moment. Even if it cannot hope to dominate such a powerful firm, Cray may yet offer more short-term value. Investors who believe that secular market trends and solid management will benefit Cray would do well to take a closer look and conduct further research.
Mike Thiessen has no position in any stocks mentioned. The Motley Fool owns shares of International Business Machines (NYSE:IBM).. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Solid Value Play or Relic From an Earlier Time? originally appeared on Fool.com is written by Mike Thiessen.
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