Shares in machine-vision company Cognex Corporation (NASDAQ:CGNX) rose 17.4% in February, according to data provided by S&P Global Market Intelligence. The move coincided with a well-received set of fourth-quarter earnings.
The earnings or guidance had nothing overtly positive to say, but investors took it to heart that end-market conditions don't appear to be getting any worse. The company is still seeing weakness in China and growth in its automotive market, which traditionally contributes a quarter of the company's sales but slowed to zero in the fourth quarter due to hesitancy among automakers to spend money in the face of slowing automotive production.
Moreover, management couldn't talk much about its consumer-electronics sales in the fourth-quarter report. Apple is its largest single customer and consumer electronics is its largest single end market because the company typically receives orders from consumer-electronics companies in the second and third quarters.
On a brighter note, sales to the logistics end market -- Cognex's solutions are primarily for e-commerce fulfillment in warehouses -- now represent around 12% of Cognex's sales and they grew more than 50% in 2018. Management expects sales to the logistics end market to increase at a 50% rate for the foreseeable future.
Cognex faces a lot of uncertainty in 2019, but as outlined previously, that doesn't mean all the risk is on the downside. Logistics sales look set for another strong year -- and all it will take is a few large consumer-electronics orders to bring Cognex back to the 20%-plus growth rate that management expects to generate over the long term.
In this regard, it's worth noting that Cognex's growth drivers aren't just cyclical (those aligned with the economy and specific industry prospects); they are also secular (capable of growth irrespective of the economy). For examples of the latter, consider the increasing use of automation in manufacturing processes, e-commerce fulfillment, and smartphone manufacturers adding new features or models in order to grab market share.
The point is that Cognex can still generate growth even if overall prospects in the industries it serves are heading downward. All told, the market has decided to take a positive view of Cognex's prospects in 2019; let's hope it's right.