It’s a great time to invest in machine vision

As I write (August 2008), stock in Cognex is trading at a whisker over $19 a share, yet early in June it was nudging $30. Four years previously it was at $37. Has this precipitous decline come about because the market suddenly determined that Cognex is run by nincompoops?

Of course not. In fact, judging by the results at the half year, (Q2 2008, opens as a pdf,) Cognex is extremely well run. Poor Dr. Shillman must be tearing his hair out and wondering just what he has to do to impress the investor community.

Look at the numbers: revenue (sales) is up 21% from the first half of ’07 while income (profit) is up an astounding 101%. Those are results to make the oil companies jealous.

So what’s going on?

First, Dr. Shillman is gloomy about the second half of 2008, anticipating that slowing in the US will become more widespread. That’s a gentle way of saying that we shouldn’t expect full year results to be quite so dramatic.

Second, I believe there’s a big question over where future growth is going to come from. Yes, the market for industrial inspection will, in the longer term at least, continue to grow, although much of that growth will be in India and China. And as that’s unlikely to be double digit growth, I question whether investors will be satisfied.

No, the answer has to be either acquisitions, (and they have the cash for that,) or new products, possibly in new, albeit related, markets. I noticed that Cognex have ramped up R&D expenditure, so it appears that perhaps they’ve reached a similar conclusion.

So what should we be expecting from Big Yella? Let’s hear your thoughts.