Cognex: It all comes down to the growth rate

Industrial automation is a megatrend. We are convinced of the long term attractiveness of Cognex business and growth opportunity over the next 5-10 years due to increasing automation and cheaper robots.

• Our work shows that there is a high chance that we are at the beginning of a multi-year high growth cycle for Cognex products.

• The main driver is falling cost of automation providing payback in 3 months to 1 year.

• The complication lies in removing the volatile cyclical elements such as the Apple capex cycle which hit a high in 2017.

Our Position:

• Q4 Earnings on 15th Feb will give a lot of insight into the underlying growth rate.

• We think growth will not be a straight line, as Cognex makes one-off sales, this should provide opportunities in the stock.

• At this point, we prefer to wait for growth expectations to come down to have a greater margin of safety.

Potential Upside: $93 (+35%): Structural change, 25% revenue growth

Downside: $42 (-38%): Cyclical revenues, but 15% revenue CAGR through the cycle.