What happened
Shares in data capture company Zebra Technologies (ZBRA -0.48%) rose 50% in 2020, according to data provided by S&P Global Market Intelligence. But it wasn't all smooth sailing for the stock, with a significant decline in early March followed by a 100%-plus gain after that.
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For readers who don't know the company well, Zebra manufactures bar code scanners, RFID readers, mobile computers, and printers that capture real-time data. As data becomes an ever larger part of industry, it's essential to capture more and more of it through devices made by Zebra and a competitor like industrial conglomerate Honeywell International (HON -0.75%).
There were three main drivers for Zebra's share price appreciation in 2020:
- According to management, Zebra has "substantially completed its initiative" to shift sourcing from China, allaying fears that trade tariffs would lead to escalating costs for the company.
- Its impressive recovery from the pandemic has soothed concerns over its exposure to clothing retailers and small businesses.
- The sales recovery has been a lot stronger than management's guidance, and it's been backed up by a positive outlook from Honeywell, too.
Expanding on the sales recovery, management had forecast a 3% to 7% decline in the third quarter only to report a 0.2% increase. Moreover, it expects sales to increase by 3% to 7% in the fourth quarter.
So what
The acceleration in investment in digital technologies and automation caused by the pandemic is playing to Zebra's strengths. For example, if the surge in e-commerce demand means more investment in logistics, that means more demand for data capture products. As such, Zebra is probably a net beneficiary of the pandemic.
Now what
In the near term, investors should look for the fourth-quarter sales numbers because they may well come in ahead of guidance. Thinking longer term, the glass-half-empty view sees an artificial pull-forward in Zebra's sales in 2020, which will then correct itself in 2021.
On the other hand, the glass-half-full view sees the increased investment in digitization and automation as a structural change that will encourage wider adoption (and ultimately more sales) for Zebra. Given the strong secular trend in investing in automation, investors have every reason to believe the glass-half-full view will win out in 2021.
