Take that, Darth Vader!

Rofin-Sinar develops laser technology that make light sabers look like child's play. And its stock looks like a buy.
(Fortune) -- Luke Skywalker would be jealous. Rofin-Sinar, a company headquartered in Detroit and Hamburg, Germany, develops technology that make light sabers look like child's play. And while you may not have heard of Rofin, a 30-year veteran and leader of the laser industry, the company's prospects appear to be heating up and its stock looks like an attractive buy.
Indeed, the stock is up 26% this year to date compared with 8% for the Russell 2000 index, yet it's still trading at a discount to its peers such as Coherent , a Santa Clara, Calif.-based company that, among other things, makes industrial lasers used to produce flat panel displays; and Excel, based in E. Setauket, N.Y., which makes laser systems primarily for industrial and scientific applications.
"These guys are basically the celebrity chefs of lasers," says Rick Weed co-manager of the Putnam Small Cap Growth Fund, which has owned Rofin stock since 2004.
Rofin (Charts) makes lasers and laser systems that fall into three categories: macro for cutting and welding things like sheet metal and car parts; micro for fine welding and perforating small pieces in electronics and other items; and marking for literally making marks, like etching serial numbers on glass, metal or plastic. Its customers range from car makers who use its products in factories to, for example, cut plastic and metal pieces in vehicles; to hard-drive manufacturers, who use it for welding electronics; and jewelry designers who use it to cut precious stones.
The company is given top grades for its strong client relationships in North America, Asia and Europe, and its ability to develop new and useful products.
"They are excellent at controlling their process and the beam," says Weed, "so they get just the right recipe to do what [their customers] need."
That recipe has produced some high-quality earnings and strong revenue numbers. In its most recent quarter, ending in June, Rofin reported a 22% increase in revenues and a 52% increase in earnings. Most encouraging to Weed, though, is Rofin's $94 million backlog - in other words, orders that have been secured from customers, but not yet booked as revenue. The backlog is an all-time high for Rofin, signaling that demand for its products is strong.
While backlog is something companies can manipulate - orders may never materialize leaving a company long on inventory and short on sales, but Chuck Murphy, an analyst with Sidoti & Company says Rofin's management is straightforward, avoids "beating around the bush" and admits trouble when it exists.
"With this company, honesty as far as financial disclosure is not a problem," he says.
Rofin's big money comes from machine-tool-cutting and welding, automotive and semiconductor and electronics applications, which accounted for 54% of its $375 million sales last year. The remainder was spread across a wide variety of industries. For example, Rofin supplies aircraft manufacturers, as well as consumer-goods companies, universities and medical devices users.
Weed is excited about laser use in etching and cutting silicon and in welding lithium batteries and dental devices.
"It really is Star Wars cool technology," he says.
Rofin's products may sound like they are straight out of science fiction, but lasers are just another way to deploy energy, says Needham & Company laser analyst John Harmon, explaining "a drill removes molecules, a laser vaporizes them."
In other words, the market for lasers is much more down to earth than you might think, and isn't dependent on high-tech customers. Demand for them may grow among companies where traditional machine and manufacturing tools currently are used. "Lasers are a very generic tool for cutting, welding and writing," says Harmon.
Rofin can generate new business by targeting niche uses for laser technology - for example, architectural glass cutting, rather than huge applications - as in the automotive industry, says Murphy. It also helps that Rofin has a history of keeping the customers they sign on, and expanding the relationship by working with customers to find new applications for laser technology.
Since it takes about five years before companies need to replace laser equipment, "you have a big difference between the first purchase and the second," Murphy explains. "So if they can build up a relationship it makes it a whole lot easier for future sales."
Rofin has another thing going for it: cash. With about $9 in cash per share, analysts expect that Rofin will hunt for acquisitions, which could benefit the top and bottom line, protecting them against an economic slowdown. Rofin has and is expected to continue to use acquisitions to help it move into new markets and obtain new applications for its technology.
Wall Street sees little to be skeptical of, with fewer than 800,000 of the 15 million outstanding shares being sold short, which Weed says "heartens me to no end." Weed is projecting 12 percent to 15 percent earnings growth over the next year. With a PE of only 15 based on 2007 earnings compared to peers like Coherent trading at more than 18, Rofin-Sinar Technologies looks like a bright spot in the market.