This Manufacturing Stock Is Trading At a 40% Discount

The pandemic brought with it a bunch of issues, some of which were ones relating to the global supply chain. It led to a massive shortage of critical components like semiconductors around the world. These disruptions have resulted in higher prices and lower production outputs dragging stock prices lower. 

However, the pullback provides investors an opportunity to buy the dip in companies such as Cognex (NASDAQ: CGNX), a leading producer of machine vision products. Cognex has three major markets: Auto, consumer electronics, and logistics. It has an international customer base with offices across the Americas, Europe, and Asia.

Cognex and supply chain challenges

Cognex’s annual revenue rose from $725.6 million in 2019 to $1.04 billion in 2021. The current year could have been a stellar year for the company as the pandemic began to subside. But Russia invaded Ukraine, COVID-19 revisited China, and the stock lost momentum. It has lost close to 42% in 2022. 

Cognex CEO Rob Willett, in his first-quarter earnings call in May, said, “…automation projects are taking longer to deploy, and some are being delayed because of supply chain challenges and staffing shortages.” Don’t expect the situation to improve anytime soon as supply chain challenges still exist thanks to the Russia-Ukraine conflict. The company sources key components from both Russia and Ukraine. 

While the auto sector still hasn’t figured out its supply chain issues, Cognex’s guidance for consumer electronics and logistics divisions is good. The company says that, sequentially, it believes that the higher revenue from the consumer electronics industry will be offset by the slower-moving auto sector and the timing of large logistics projects. 

Cognex provides a steady guidance 

Cognex expects annual revenue from logistics and consumer electronics to move higher in 2022. Willet said that logistics would have a quiet Q2, but Q3 will be a lot more active. The company also said that it is looking toward the electric vehicle sector to cover up the slowdown in the traditional auto space. Willet said, “…we see strong growth in EV and EV battery and much more muted growth in traditional automotive.”

Its outlook for Q2 has revenue guidance of between $265 million and $285 million. It said supply chain costs would keep its gross margin for Q2 in the low-70% range, below the company’s mid-70% long-term target. 

However, Cognex’s financial position is strong. As of April 3, 2022, Cognex had $794 million in cash and investments and zero debt. It spent $130 million on stock repurchases and paid $11 million to its shareholders. It expects to continue the same in Q2 as well.

Cognex’s history says it has a solid record of delivering results. It has paid dividends for 19 straight years while sales have grown annually by 19% in the last decade. 

At a market capitalization of $7.73 billion, Cognex is not a large-cap stock. But if it continues to build the way it has, it can get there. Its stock closed at $43.5 on July 12, and the consensus target price for the stock is $62.5, which is a potential upside of 40%. 

One point that investors need to keep in mind is that while Cognex is available at a solid discount now, it has a high beta at 1.63. There could be a lot of volatility in the stock price and there could be a chance to buy into Cognex at a lower price. 

Cognex is a great stock for long-term investors and while 2022 could be full of headwinds, its fundamentals are still strong. It is down due to external factors beyond its control, and it is sitting on a healthy amount of cash. Its numbers are still moving up, albeit at a slower pace. It is still a good buying opportunity.