Cognex Machine Vision – Bionic Eyes for Robots
If robots are going to start stealing everyone’s jobs then we want a piece of all those cost savings. We’ve talked about some exciting opportunities for investing in robotic startups, but there also seems to be quite a varied selection of publicly traded robot-related stocks for retail investors. There’s even the Robo Global Robotics & Automation ETF (NASDAQ: ROBO) which has 85 different constituents, though some of these stocks like 3D Systems, Arcam, Stratasys, Parrot, and Mobileye seem like questionable plays on robotics.
Stratasys, Arcam, and 3D Systems are all 3D printing stocks though you could use them to print a robot we suppose. Mobileye is a play on driverless cars. Parrot is a play on drones. Are driverless cars robots? Is a drone a robot? You probably could make an argument that both driverless cars and drones are robots but we’re going to call them what they are. Driverless cars and drones. When looking for investment opportunities in robotics, we’re looking for robotic technology other than these two examples that specifically displaces the need for manual labor.
When thinking about building a robot, one key component allowing it to perform the same tasks as humans would be real-time vision. All robots including retail stock takers, hotel bellhops, and assembly line workers need some way to see. Enter a publicly traded company called Cognex Corporation.
Massachusetts based Cognex (NASDAQ:CGNX) claims to be “the world’s leading supplier of machine vision systems – or computers that can see“. With a market cap of $3.1 billion, the company has been in business for 34 years with 1,300 employees in 20 offices around the globe. One gauge of retail investor interest in a stock is to see how much Seeking Alpha coverage it gets. Cognex doesn’t get much. Here’s their 5-year revenues and net income:
While retail investors may not show much interest in CGNX, institutional investors hold 90% of their shares. Profitability and revenue growth seem to be trending in the right direction, so what exactly is driving this growth?
82% of Cognex revenues coming from “factory automation” which is their largest and fastest-growing market. While the sharp increase in 2014 revenues was primarily attributed to applications in the consumer electronics industry, the actual applications of their technology cross an entire spectrum of industries. Golf ball manufacturers use it to count dimples in gold balls. Casino operators use it to tell which slot the ball lands on for roulette. Frozen pizza makers use it to ensure an equal spread of ingredients. Japanese soap operas use it to spot wardrobe malfunctions. Russian engineers are using it to build the Chernobyl arch. And the list goes on.
So what’s the growth thesis here? According to a report by Markets and Markets, the machine vision market is expected to grow from $8.08 Billion in 2015 to $12.50 Billion by 2020, a CAGR of 9.1% during the forecast period. Cognex’s revenue increases in 2014 were attributed to a rise in machine vision for consumer electronics. With billions of smartphone devices being created in recent years, the demand for machine vision in consumer electronics doesn’t seem surprising. What will likely drive a great deal of growth in the machine vision space are new applications such as digital bar code readers used by Simbe or the human-eye like navigation needed for Savioke to navigate down hotel hallways.
Why is Cognex in such a good position to capture this growth? The answer is because they make significant investments in R&D in order to be ahead of the market. In 2015 they spent $70 million or 15% of revenues on R&D which was up from 13% the year prior. If they need to acquire technology, they’re in a good financial position to be able to. As of December 31, 2015, they had $621.5 million in cash and investments with zero debt.
Keeping an eye on what Cognex (NASDAQ:CGNX) gets up to is something we feel compelled to do, not only because of the growth thesis but because we truly respect a company that’s a) not afraid to express some originality in the politically correct space known as corporate public relations, and b) treats their employees well. Cognex takes the prize in both these categories and has one of the most non-corporate yearly reports you’ve ever seen. When we first clicked on the link, we thought we had been redirected to a spam site. Here’s a teaser for you:
Yes, that’s how you “enter” the 2014 Yearly Report and the contents are even more fun to read. That guy in the top hat is the Chairman and Founder of Cognex Bob Shillman. With the average employee tenure sitting at over 10 years, people seem to love working at Cognex. Every employee who reaches 15 years of service is rewarded with a trip to one of the Wonders of the World. Every baby born to a Cognex employee gets five shares of CGNX. Every year they pass out cash bonuses from an armored car. In 2014, everyone in the company received $1,000 to celebrate a shipping milestone. And the list goes on. The only question we had after reading about what a great company Cognex is to work for is, what must their company Christmas parties be like?
Despite what the pundits say, FAANG stocks (Facebook, Apple, Amazon, Netflix, Google) don't give you real exposure to AI. Read about 5 stocks that give you true pure-play exposure to AI in our guide to investing in Computer Vision companies, freely available to Nanalyze Premium subscribers.