A Machine Vision Stock for Investors to Watch
While we don’t have humanoid robots wandering the streets just yet, it’s only a matter of time now. Since the ability for a robot to walk on two legs like a human has been sorted, now we just need to give the robots eyes so they can see where they are going and walk slowly on the sidewalk while checking their smartphones. This ability for machines to see is being manifested in a number of ways. The first is for still images, and we see that medical imaging algorithms already have better eyesight than humans do. Then, there’s the ability to see in real-time like humans do. This is what autonomous vehicles companies are working on, primarily by using LiDAR and computer vision.
One really cool company working on computer vision is Cognex (NASDAQ:CGNX). We first highlighted CGNX back in February 2016 in an article titled “Cognex Machine Vision – Bionic Eyes for Robots“. Since that article, shares of CGNX have soared +223% compared to a Nasdaq return of just +45%. If you failed to jump on the bandwagon and now you think Cognex is overpriced, we’re going to sort you out with a small-cap stock over in Europe that one of our lovely readers was kind enough to point out.
Founded way back in 1985 when some of us were
just teenagers wearing diapers, German company ISRA VISION (ETR:ISR) claims to be the world’s largest and most capable vendor of surface inspection systems. With no single customer accounting for more than 5% of their overall revenues, the company has offices located around the world which house over 700 employees. The core technology of ISRA Vision is their ISRA-BrainWARE, a software solution for machine vision that combines optics, lighting, image processing and classification algorithms to imitate the human eye. This technology is used in both of the company’s two main divisions:
- Surface Vision (76% of sales)- Concerns materials that are checked for defects during the production process with the main focus on flat glass, solar, foil, metal, paper, and printing.
- Industrial Automation (24% of sales)- Primarily the auto industry, machine tool manufacturers, and general industrial automation.
When it comes to automotive applications, ISR has over 1,000 machine vision systems deployed in most of the major auto manufacturers like GM, Audi, BMW, Honda, Porsche, and of course Volkswagen. The surface vision segment is where the software shines as it performs inspection tasks with incredible speed and accuracy. ISR’s computer vision can reliably detect defects which are not visible to the human eye at speeds of up to 36.45 yards per second – in other words, it can cover the distance of a football field in just 3 seconds while spotting issues that humans can’t while standing still. This would come in handy for the production of photovoltaics, which is why ISR has more than 3,000 systems installed in the solar industry. When it comes to inspecting individual parts, they can work at speeds of up to 200 parts per second.
Zee Germans are known for their ability to innovate, and innovation has been a staple at ISR for decades as a result of heavy research and development spending. In 1990, they developed the first contour-based robot vision system for the automotive industry. In 2001, they deployed the first fully automated paint finishing inspection system for Volkswagen. Over the past decade, they’ve been making bolt-on acquisitions to enter new markets like solar, glass, paper, and metal. In 2016 alone, they spent $25 million on R&D which amounted to around 16% of revenues. Speaking of which, when it comes to financial performance, this $762 million company has been firing on all 8 cylinders. They’re not only profitable, but they’ve been showing consistent revenue growth over time as seen below:
Even the market crash of 2007/2008 barely affected their revenues, and for 2017 they appear to be on track to exceed 2016 revenues of $154 million. In looking at the bigger picture, ISR claims that machine vision is an $8.3 billion market across many different application areas. They see that majority of growth coming from Asia which accounts for 40% of their revenues. The remainder is about evenly split between EMEA and the Americas with three countries accounting for more than 10% of their total sales (USA = 16.7%, Germany = 16.6%, China = 23.1%).
ISR is far from being alone in the machine vision space. Cursory research showed quite a few players in addition to CGNX. Large Japanese robotics company Fanuc is developing their own machine vision technology and small startups are also cropping up like Pick-it and Robotic VISION Technologies. All that money being spent on R&D will certainly help them compete along with their ability to make complementary acquisitions as they see fit. It probably wouldn’t be a bad idea for them to take some of the cash lying around and spend it on a new website and some marketing collateral. No need to waste money on a PR firm or marketing department, just get someone to throw up a website that doesn’t look like something you’d expect to access with a 2400 baud modem.
If you’re one of our many readers who hail from the United States, the best way to buy this machine vision stock is by creating an account with Interactive Brokers. You’ll need to buy Euros first, then buy the stock on the ETR exchange. If you already hold shares of ISR, you should be pretty happy with how they’ve performed recently as investors pour money into robotics stocks:
With the dollar having been historically quite strong, this is a great way to give yourself some currency diversification. Since you will be holding the stock in Euros, any appreciation of the Euro against the U.S. dollar will put more money in your pocket. ISR even has a small dividend which will put a few Euros in your pocket about once every year. Just be aware that small-cap stocks command a lot more risk than large caps, so always make sure that any stock you buy is part of a well-diversified portfolio.
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 subscribers.