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Increasing margins, a surging top line, and a better than expected quarter are just a few things FARO Technologies, Inc. (FARO - Free Report) has going for it. Valuations may be a bit high, but that doesn't mean there isn't money to be made with this Zacks #1 Rank (Strong Buy).

Company Description

FARO Tech makes computerized measurement and imaging devices. Products are used to make and analyze 3-D models for manufacturing and other specialty applications.

Top Line Swells 43%

FARO Tech reported quarterly results on Nov 2 that showed a 43% jump in sales, to $65 million. Bookings were up almost 29%, to $60 million.

Net income was up 176% to $6.4 million. That put EPS well ahead of expectations, at $0.38 versus the Zacks Consensus Estimate of $0.29. The positive surprise snapped a 2-quarter streak of misses.

Estimates Tick Higher

After the earnings report analysts raised full-year projections, accounting for the surprise and then some. Analysts polled by Zacks are expecting FARO Tech to earn $1.26 per share this year, up 11 cents.

Next year's Zacks Consensus Estimate rose 4 cents, to $1.85. In 2010 the company made $0.68, which puts growth rates at 86% and 46%, respectively.

Efficiency Continues to Improve

Analyst reports continue to highlight the company's widening margins and expect that to continue through next year. FARO Tech also carries a healthy cash balance, near $120 million.

Priced for Perfection

The fundamental story looks good, but right the market is pricing in the improving operating leverage and rising sales.

With a stock going for 25 times next year's estimates, a PEG at 1.7, and a price to sales near 3.2 the company has little, if any, room for error.

The Chart

While the stochastic is currently showing shares are "overbought" that has been the case for several weeks. Yet the stock continues to climb. We could see some resistance near the 52-week high.

FARO Technologies, Inc. - ticker FARO>

Bill Wilton is the Aggressive Growth Stock Strategist for He is also the Editor in charge of the Zacks Small Cap Trader service

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