In Q4 2014 NFTRH (+) presented for its subscribers a long/short trade involving FARO and HURC, respectively. I never got on the HURC short because it turned down before my optimal shorting point. But I did get long FARO for a nice and profitable trade.
The gist was that any late year revenue bump – per our analysis of traditional year end sales increases in the Machine Tool and related industries – would be an opportunity to long a great company like Faro for a trade and short an over valued vanilla company like Hurco.
Why short Hurco (and take profits on Faro)? Because of the effects of the strong Dollar, weak Euro and weak Yen. That is the play that everyone (incl. Mr. Druckenmiller a couple posts ago) is on these days. But in Q4 2014 few were. We were. It was the pro-USD exports trade, which would hurt the likes of American companies like HURC and FARO.
Now, Faro is suffering currency exchange fallout and getting killed in the market. Wall Street catches on as Needham downgrades to ‘hold’ and Noble to ‘sell’ on a revenue miss. Just look at this mess…
For the same reason NFTRH is following closely the correction of quality Japanese machine tool and robotics manufacturer, Fanuc, we will once again do the same with Faro, a company that is not going anywhere over the long-term. It’s best of breed in its highly innovative niche.
But still, this is what happens when you follow the Wall Streeters that have never set foot on a machine shop floor. But it should have been considered possible by these financial types because it is for strictly financial reasons Faro is getting blown up. Check these tidbits out from the press release. It’s not manufacturing stuff, it’s macro financial stuff…
- negative foreign exchange impact of approximately $7 million driven primarily by the decline in the Euro and Yen relative to the U.S. dollar;
- weaker macro-economic conditions in Japan combined with the limited release of manufacturing stimulus funds which, in turn, decreased industrial demand in Japan for capital purchases; and
- weaker industrial demand in Brazil due to recent macro-economic events.
In addition to the negative impact on sales, changes in foreign exchange rates are expected to generate net foreign currency losses of approximately $1.3 million related to the Company’s intercompany account balances denominated in different currencies, primarily the Swiss Franc.
Whoa! That’s a mouth full. Time was, you were a manufacturing guy, you were productive and you tended to your manufacturing business. Time was, you were a financial guy and even if you were not fully versed in an industry and the underside of your fingernails was completely clean, you at least were a crack macro analyst.