Investing in Industrial Cameras with Basler AG
Perhaps the most important concept that retail investors should grasp before managing their own portfolios is that of risk. One simple way to describe risk is the “volatility of returns”, in other words the extent to which a stock will climb or fall based on the overall market movements (we measure this using something called “beta“). Risk can be reduced by placing multiple bets as opposed to putting all your eggs in one basket. That should be intuitive. What may not be so intuitive however is something we call “home bias“.
“Home bias” refers to the propensity for investors to “buy what they know”. Most U.S. retail investors will invest in U.S. stocks denominated in U.S. currency which means that they are betting on the continued strength of the U.S. as a country along with the U.S. dollar as a currency. As the world becomes increasingly global, it makes sense for retail investors to start looking at all the global markets as their investment universe as opposed to only the popular U.S. stock exchanges.
There are many interesting stocks to be found in the European markets that receive little exposure in the United States. One such company we covered about 3 months back was Isra Vision (ETR:ISR), a company that operates in a similar space to Cognex (NASDAQ:CGNX) which we also wrote about a few years back. Both of these machine vision companies have performed extraordinarily well with 5-year returns of +584% for CGNX and +731% for ISR compared to a NASDAQ return of “just” +133% over the same time frame. In the case of CGNX, your gains would be in the form of U.S. dollars while for ISR, your gains would be in the form of Euros. Stocks like ISR offer a great way to invest in exciting technologies, strong businesses, and foreign currencies, especially if you think that the U.S. dollar isn’t going to stay strong forever. (Full disclosure: We’re holding a modest position in ISR)
In this article we’re going to introduce you to another stock that is involved in providing industrial grade cameras for use in a variety of applications across a broad number of industries.
If you thought that Cognex and ISR Vision performed well over the past 5 years, you ain’t seen nothin yet. Founded in 1988, German company Basler (ETR:BSL) is a leading manufacturer of industrial cameras that are used for everything from monitoring traffic for speed offenses to sorting apples on a conveyor belt. If you had the foresight to invest in shares of Basler 5 years ago, you’d be up +1314% on your position so far. That’s because they’ve been experiencing a great deal of growth consistently over time as seen below:
Shareholders in Basler should be especially excited about the +223% share price increase over 2017 which can be attributed to the fact that in only the first three quarters of 2017, the company had already exceeded 121 million euros in revenues. That’s almost a 25% increase over 2016 and they haven’t even announced Q4-2017 revenues yet. So what is it exactly that they’re selling so much of?
With around 400 employees across the globe, Basler manufactures high-quality digital cameras for use in applications such as the following:
Their main selling points are that the cameras are easy-to-use, compact, and offer an excellent price/performance ratio. They sell entire image processing systems that are capable of tasks such as measuring and counting vehicles or products, calculating their weight or volume, sorting goods at high speeds based on pre-defined characteristics, and automatically extracting small but decisive pieces of information from giant volumes of data. Here’s a look at some of their cameras:
When it comes to assessing the extent to which Basler is involved in “machine vision” or “computer vision”, we’re getting some mixed signals. At least a few John-in-Mumbai research firms place Basler in the same grouping as Isra Vision and Cognex which are all labeled “3D Machine Vision” companies. However when it comes to the key competitors that Basler lists, Cognex and Isra Vision are nowhere to be found. If we try and just assess the situation using common sense, computer vision comes in the form of cameras that produce digital imagery that can then be analyzed by artificial intelligence (AI) algorithms. The ability to capture imagery falls solely on the back of the camera being used, so industrial cameras would be considered a “picks and shovels” play on computer vision.
In the case of Cognex, we see 82% of their revenues coming from “factory automation” which is their largest and fastest growing market. On the other hand, Basler is involved in a much broader set of applications. As long as they’re able to capture the imagery then it’s easy enough to then apply AI algorithms to all this big data. Their primary concern should be that they stay ahead of the curve in the fast moving world of camera technologies – which brings us to our next point.
We’re not quite sure how zee Germans decide upon what dividend policies to use, but here in ‘Murica we would typically favor reinvesting profits back into a growing company to accelerate growth as opposed to buying back shares or paying dividends. In the case of Basler, you’re going to get a bit of each. They’ve been buying back shares since 2014 and will continue to do so until 2019. Dividends have been paid since 2011 in varying amounts which represents some of their leftover cash after investing around 14% of sales into research and development (R&D). As you would expect from a company that pays dividends, they’re a profitable, geographically diversified business with around 40% of revenues coming from Asia. Speaking of diversification, we noted that the company mentions “gender quotas” in their 2016 annual report which should be a big red flag for any investor who believes that shareholders are best served by companies who hire the best person for the job regardless of their physical characteristics.
Shares of Basler have seen quite the run up this year to coincide with their spectacular growth in revenues which may deter many investors from opening a position in this $820 million company. Like Isra Vision, Basler would make for a great bolt-on acquisition for any large firm looking to enter the machine vision space with a profitable business that has solid financials and consistent growth. Couple that with the currency exposure you get to the Euro in either case and it’s a great way to invest in new technologies without having to pay the price premium that a firm like Cognex commands at the moment. If you want to buy shares in either ISR Vision or Basler AG, you’ll need to open up an account with Interactive Brokers.
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