Is Fusion-io Worth the Risk?

With shares of Fusion-io (NYSE:FIO) trading at around $16.80, is FIO an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Here’s the technical profile for Fusion-io: engages in the development, marketing, and sale of storage memory platforms for enterprise data decentralization primarily in the United States.

Here’s what Fusion-io is known for: putting flash storage on a server to make it fast and accessible.

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Let’s take a look at some positives and negatives for Fusion-io:

Positives:

  • Analysts love it: 11 Buy, 13 Hold, 0 Sell
  • Consistent revenue improvements on an annual basis
  • Stifel recently upgraded to Buy from Hold
  • Short position has decreased 1.11 percent ahead of earnings
  • Piper Jaffrey sees improvement in enterprise demand and easing competitive pressures
  • Introduced 1.6-terabyte ioFX for visual effects designers
  • Not likely, but possible IBM would want to scoop up competitor(NYSE:S) in flash storage space

Negatives:

  • Lacks a diversified product portfolio
  • Weak margins
  • Weak cash flow
  • Inconsistent earnings
  • Enormous short position (indicates potential danger)
  • Weak guidance
  • IBM might limit company’s potential in flash storage technology

Now let’s take a look at some comparative numbers. The chart below compares fundamentals for Fusion-io, EMC Corporation (NYSE:EMC), and Stec (NASDAQ:STEC). Fusion-io has a market cap of $1.58 billion, EMC has a market cap of $46.91 billion, and Stec has a market cap of $161.49 million.

FIO

EMC

STEC

Trailing   P/E

N/A

18.12

N/A

Forward   P/E

56.00

10.80

N/A

Profit   Margin

-0.32%

12.59%

-61.33%

ROE

-0.30%

13.18%

-38.55%

Operating   Cash Flow

$57.04 Million

 $6.26 Billion

 -$9.20 Million

Dividend   Yield

N/A

N/A

N/A

Short   Position

44.70%

2.50%

N/A

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Strong  

The debt-to-equity ratio for Fusion-io is stronger than the industry average of 0.20. Debt management has been excellent.

Debt-To-Equity

Cash

Long-Term Debt

FIO

0.00

$368.52 Million

$0

EMC

0.07

$6.17 Billion

$1.71 Billion

STEC

0.00

$158.23 Million

$0

 

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T = Technicals Are Weak  

Fusion-io hasn’t performed well since its IPO. There have been spikes, but the overall trend has been down.

1 Month

Year-To-Date

1 Year

3 Year

FIO

2.35%

-26.76%

-38.05%

N/A

EMC

-9.15%

-13.28%

-21.36%

10.58%

STEC

-26.54%

-29.82%

-59.25%

-77.16%

 

At $16.80, Fusion-io is trading above its 50-day SMA, but below its 100-day SMA and 200-day SMA.

50-Day   SMA

16.16

100-Day   SMA

18.83

200-Day   SMA

22.11

 

E = Earnings Have Been Inconsistent                  

Earnings had been improving on an annual basis until there was a setback in 2012. On the other hand, revenue continues to impress on an annual basis. As long as revenue continues to increase, there will be value.

2008

2009

2010

2011

2012

Revenue   ($)in   millions

0.65

10.15

36.22

197.20

359.35

Diluted   EPS ($)

-1.73

-3.27

-2.95

0.06

-0.06

 

When we look at the last quarter on a year-over-year basis, we see improvements in revenue and earnings.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue   ($)in   millions

84.13

94.24

106.60

118.12

120.57

Diluted   EPS ($)

-0.07

-0.05

-0.01

0.04

0.02

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

The industry hasn’t performed well recently, and with the global economy in flux, the future isn’t exactly bright and shiny. The good news is that storage is expected to see 50 percent compound annual growth through 2016. Consolidation is also likely, which can be viewed as a potential positive or negative for Fusion-io.

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Conclusion

If Fusion-io can navigate its way through some difficult challenges, then it has the potential to be a big winner. On the other hand, if the stock market suffers a steep correction in the near future, then Fusion-io will not hold up well.

In regards to earnings, there are some situations where buying ahead of earnings makes sense, but this isn’t one of those situations. It’s simply too risky because the likelihood of an eventual recovery isn’t something investors can hand their hats on. There is also no dividend to ease the pain.

At the current time, Fusion-io is a WAIT AND SEE.

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Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I do not have a position in this stock. I am currently short technology, financials, the Russell 2000, and the euro.