FLIR Systems (Nasdaq: FLIR) is a company that specializes in infrared imaging. Normally I do not examine Nasdaq 100 firms, but given that I have been doing a lot of research on military-related investments this one struck up on my radar some time ago and I did some research on it before putting it on a watchlist.
Yesterday, they announced that their expected revenues and earnings would be under what they had previously guided ($390M revenues for the quarter vs. $410M expected; $0.35 EPS compared to $0.38 EPS expected) due to a slowdown in their government product/services division. They are trading down about 11% from the previous day although you can reasonably infer that well-informed investors caught wind of this between May and June this year.
FLIR’s technology is widely utilized. The company made its breakthrough when it got into the civilian infrared imaging market (opposed to strictly military) and this has opened up new markets. The company is now bound by the law of large numbers with respect to its revenues, so it should generally be considered to be a leading player in a maturing industry. It is still trading a valuation which projects ample growth in the future, but a sign of the maturity of the industry was perhaps when the company decided it was going to declare quarterly dividends earlier this year – currently they are at 24 cents per share per year.
Most good companies have periods of time where their stock prices go through significant corrections before they lead their way up again – purchasing such companies when they go through corrections and temporary operational setbacks is how one outperforms the marketplace. Markets love to extrapolate growth way out into the future, and they also like smoothness of earnings and revenue growth curves – any hiccups along the way and the market loves to punish these companies.
On the flip side, investors in companies that have most of their revenues derived from US government entities should be somewhat worried about the US fiscal situation.
The usual disclosure is that I have no position in FLIR, nor am I interested in it even at existing valuations.