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Zygo Corp. (NASDAQ: ZIGO)
Zygo Corp., Laurel Brook Road,
Middlefield 06455 (860-347-8506, http://www.zygo.com)
President and CEO: Gary K. Willis
Chairman: Paul F. Forman
Market capitalization: $197.8 million
Sales (12 months ending 9/97):
$93.1 million
Net income after taxes (12 months ending 9/97): $12.5 million
Employees: 399
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Business New Haven
12/29/1997
By: BNH
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Zygo Corp. was named in October as one of Connecticut's 50 fastest growing companies. For the quarter ending in September 1997, the company's sales jumped 32 percent to $24.3 million, and net income went from a loss of $7.9 million in the previous year to $1.7 million. It trades at a low P/E ratio for a high-tech stock, and the analysts following the stock all rate it a buy.
Why, then, has its price been sliding downward steadily since August? After peaking above 35, Zygo's share price has given its investors a sharp case of indigestion, dropping below 15 with no signs of a let-up in the free fall.
Zygo Corp. is a manufacturer of high-tech manufacturing equipment, specializing in precision measuring devices. Supplying its products to the data storage, semiconductor and optics industries, Zygo helps manufacturers make parts and components to extremely high tolerances. This cuts down on wasted production and improves performance.
In part, Zygo has been a victim of its own success. From 1993 to 1996, the company turned in a staggeringly good performance, doubling its earnings per share each year. From $0.06 in 1993, per-share profits (split adjusted) rose to $0.12 in 1994, $0.33 in 1995, and $0.72 in 1996 (fiscal year ending June 30).
No company can double profits each year indefinitely, and Zygo took a big step back in 1997 when profits fell to $2.9 million, or $0.24 per share. Still, that much was clear in the summer, and the worst of the company's fall has taken place since then.
The only solution to the puzzle is that Zygo has been hammered by both Asian flu and investor psychology. The company attributed its formidable growth in 1995 and 1996 in large part to increasing sales to Asian semiconductor manufacturers.
What helped growth then is now a major negative in the eyes of most investors. To make matters worse, the “momentum” investors - those who bid up stocks enjoying strong earnings growth - have now abandoned ship. Zygo's share price, now that its 1997 earnings drop has made it unfashionable, has suffered accordingly.
At its current price, Zygo has to appear attractive to investors willing to brave the risks of a company in the high-tech sector and exposed to Asian turmoil. Analysts' earnings estimates for 1998 average $1.46 per share, pricing the stock at a dirt-cheap ten or 11 times projected earnings.
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