Value Line has initiated coverage of Geospace Technologies (GEOS) in its flagship product, The Value Line Investment Survey. Geospace designs and manufactures scientific instrumentation and equipment used by the oil and gas industry. The company also has a commercial graphics business that makes and sells thermal imaging systems and distributes dry thermal film products to graphic display industry sectors such as screen print, point-of-sale, signage, and textiles through EXILE Technologies. Geospace’s headquarters are in Houston, Texas, and it has locations in Canada, Colombia, England, Russia, and China. The company has an experienced management team, with each member having been with Geospace for 16 years. Its Houston office includes a 62-member engineering team. The company’s worldwide workforce numbers nearly 1,300.
Geospace was incorporated in September of 1994. The company had its initial public offering under the OYO Geospace name in November of 1997. At the time, the stock’s ticker symbol was OYOG. Geospace’s former parent company, OYO Corporation, sold its remaining 20% stake in February of 2012. In October of 2012, Geospace adopted its current name and ticker symbol.
Of the company’s $269 million in revenues in the 12-month period ending on June 30, 2013, 91% came from seismic equipment for oil and gas exploration and exploitation. The company is benefiting from a $160 million contract it signed with Statoil (STO) in November of 2012, which will be reflected in revenues through fiscal 2015. The seismic equipment business has much higher margins than the thermal imaging business, which contributed just 2% of Geospace’s operating income in fiscal 2012. (Fiscal years end on September 30th.)
In fiscal 2008, Geospace announced the development of a land-based wireless seismic data acquisition system. The shift from cabled to wireless seismic data acquisition systems has been a key driver of the company’s growth. In fact, revenues from wireless products now exceed those from traditional products. The advantages of wireless technology are increased productivity, lighter weight, significantly reduced maintenance, and avoidance of the need for cable repairs. In fact, the majority of Geospace’s revenues and earnings come from products that did not exist at the time of its IPO, 16 years ago.
Finances are in good shape. The company’s balance sheet is debt-free, and it has ample liquidity, including a line of credit that was just doubled to $50 million. Geospace does not pay a dividend, and states, “we do not intend to pay cash dividends on our common stock in the foreseeable future.” The stock has had a history of volatility, and briefly traded below $10 a share in 2009. Conservative investors ought to look elsewhere.
Geospace’s operations are sensitive to commodity prices, and also to the state of the economy. Indeed, it felt the effects of the 2007-2009 recession, as profits fell sharply in fiscal 2009. Historically, the company’s revenues have been somewhat “lumpy.” Revenues can also be affected by currency fluctuations, as more than 10% of Geospace’s business is denominated in foreign currencies. Finally, in any business that depends on technological innovation, there is always a risk that a competitor will come up with a better product.
For a more thorough look at Geospace, and the particular investment merits of its stock, subscribers should examine our full report in The Value Line Investment Survey.
At the time of this article’s writing, the author did not have positions in any of the stocks mentioned.