Hurco Seeing A Recovery, But It's Choppy

This hasn't been a great year so far for Hurco (NASDAQ:HURC). Although the “industrial recovery” theme is generally playing out, machine tool orders have been choppy and inconsistent at best. For Hurco's part, revenue and margins have recovered slower than I'd expected, making the share price underperformance relative to the S&P 500 not so surprising. I am a little surprised, though, that the shares have lagged those of other machine tool companies like Hardinge, Inc. (NASDAQ:HDNG) and DMG Mori Seiki to the extent they have (roughly 17-20% year to date); Hurco's performance has been somewhat disappointing, but not that much so on a relative basis. 

I continue to believe that Hurco is undervalued, but that comes with the caveat that this is an illiquid and unfollowed company. Moreover, the lack of margin leverage at this stage of the recovery is somewhat concerning. Even so, long-term FCF growth in the mid-single digits can support a fair value in the high $30s, and I believe the prospects remain good for ongoing improvement in the machine tool sector.

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Hurco Seeing A Recovery, But It's Choppy