2010 starts well for Cognex

After the upgraded earnings advice at the end of April (“The [machine vision] future’s so bright I gotta wear shades”) it was no surprise to see Cognex posting a huge turnaround over Q1, 2009, but despite the “heads-up” the results still impress.

For those who haven’t seen the press release, let me summarize: revenue for Q1 ’10 increased 39% over the same period in 2009 to a total of almost $60m. (The improvement over Q4 of ’09 was a less dramatic but still good15%.) But given that it’s profit that really matters in business, the most important figures are a swing from a loss of $3.4m a year ago to positive $8.5m. It’s also worth noting that profit in the last quarter of 2009 was just $0.5m, so that’s a 1,762% improvement between successive quarters.

What do these numbers tell us?

Well first, clearly people are buying more machine vision products, and the good news is that this is been seen across all markets and geographic regions, which suggests a broad-based recovery in confidence.

Secondly, I think it’s fair to deduce that Cognex have a high level of fixed costs. Dr. Shillman says, “Our strong earnings reflect the substantial leverage that incremental revenue has on profitability.” I think this pretty much sums up their financial structure: a high volume breakeven point but low variable costs, making a relatively modest volume growth (if we can call 39% modest) highly profitable.

Cognex stock has been back over $20 since April 22nd, a level not seen since October 2008, and it seems reasonable to assume that it will continue to climb.