A fiscal year 2018 estimate shows that “out-of-stocks” could be costing retailers $1 trillion annually. Recently, a Harvard Business Review article discussed what robots can do for retail. One area where robots can help is better inventory management. This is just a small example of how robots and robotics and benefit various industries. In the coming decade, robotics stocks will be in focus with global adoption of machines to make work easier and to add billions of dollars to profits.
One study indicates that between FY2020 and FY2025, the robotics market is expected to grow at a CAGR of 25.38%. Another study points to a potential CAGR of 13.5% between the current year and FY2027.
Even if the robotics industry grows at 15% to 20% in the next five years, it can be considered as an exciting investment theme. I therefore believe that any long-term portfolio should have at least one robotics stock.
This column will discuss four interesting names in the robotics industry that are worth considering for FY2021:
Even with the pandemic headwinds, IRBT stock (IRBT) trended higher by 52% for the current year. The stock still trades at a forward price-to-earnings-ratio of 21.8, which is attractive. iRobot is a specialized company in the field of robotic floor care. The company’s products include floor vacuuming robots, floor mopping robots and robotic lawn mower.
The company has strong presence in the United States. In addition, iRobot is expanding in APAC and EMEA. Global presence is likely to ensure that the company’s top-line growth remains strong.
For the current year, the company expects 12% to 13% top-line growth as compared to FY2019. Once global growth gains traction, iRobot can grow at more than 15%.
In addition, the company’s high-end product sales are increasing as a percent of total sales. If this trend sustains, EBITDA margin expansion and cash flow growth is likely in the coming years. iRobot also is boosting direct-to-consumer sales. It’s still a small part of the revenue, but will have an impact on margins in the next few years.
Overall, IRBT is one of the top robotics stocks to hold. The stock currently trades at around $77. Analyst estimates point to a stock price target of $93.8. This would imply an upside of 22% from current levels. Given that broad market valuations look stretched, it makes sense to gradually accumulate the stock.
ISRG stock (ISRG) is another name worth considering among robotics stocks. The company is a manufacturer of robotic-assisted technology and tools for surgery.
The company’s da Vinci product has been used in minimally invasive surgeries. With application in more than 5 million surgeries, the company is already a leader in surgical robots. Another product, ION, is a robotic-assisted endoluminal platform for minimally invasive peripheral lung biopsy.
It’s worth noting that the company’s financial performance was impacted in the current year by the novel coronavirus pandemic. Globally, healthcare systems have diverted resources to meet the demands of responding to and managing Covid-19.
However, ISRG stock remained resilient and continued to trend higher. This is an indication of the potential the company holds.
In terms of growth, the company holds a strong presence in the United States. However, there is immense scope for growth upside in Europe and Asia. With a recurring revenue model, cash flows will swell as the company expands in emerging markets.
Intuitive Surgical recently launched a $100 million venture fund. The objective is to invest in growth companies in the field of minimally invasive care. With a focus on innovation driven growth, the outlook is bright for ISRG stock. As the product pipeline expands, the company is well positioned to deliver strong growth.
Among the bigger names in robotics stocks, ABB (ABB) has significant presence in the robotics industry. ABB has installed 400,000 robots in 53 countries.
The company’s focuses on industrial robots with service offering for a wide variety of industries. This includes automotive, healthcare, logistics, solar and plastics. As an example, the company’s robotic automation solution has enabled GAC Motor’s in China to assemble a car in 46 seconds.
For the third quarter of 2020, ABB reported an order inflow of $720 million for the segment. The total order backlog for the company was $1.4 billion. Order growth for robotics is driven by China. I expect order intake to gain further traction once the pandemic headwind is navigated.
However, ABB is not a pure-play in robotics. The company’s business segments were impacted by the pandemic. ABB stock still moved higher by 13% for the current year. A dividend yield of 3.03% is an additional incentive and makes the stock attractive for income investors.
I would include TER stock (TER) among the list of top robotics stocks to consider. At a forward P/E of 23.8, TER stock is attractive at a time when broad market valuations look stretched.
Teradyne is also not a pure-play in the field of robotics. The company derives a bulk of its revenue from semiconductor, system and wireless tests. However, I am bullish on the long-term outlook for the industrial automation segment.
An important point to note is that Teradyne has been using the inorganic route to make inroads in the industrial automation segment. The company acquired Mobile Industrial Robots (MiR) in FY2018. MiR is a leading supplier of collaborative autonomous mobile robots. Last year, the company acquired AutoGuide Mobile Robots.
The point I want to make here is that robotics is not the main company’s business. However, these acquisitions underscore its bullish view on the segment. In the coming years, organic and inorganic growth will increase the robotics business share of total revenue.
The Covid-19 pandemic dampened global manufacturing. However, the company has seen business revive in Q3 2020 as compared to Q2 2020. Once growth accelerates, TER stock will be attractive.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
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