Insights

Why Shares of Cognex Fell 14% This Week

What happened 
Shares in machine vision company Cognex (NASDAQ: CGNX) fell by almost 14% this the week as of midday Tuesday. The move comes after investors continue to digest a disappointing first-quarter 2022 earnings presentation. 
It’s not that there was anything wrong with the earnings themselves but rather that investors were worried by management’s disclosure that its growth is slowing and automation projects are taking “longer to deploy.”
The negative commentary fell into the company’s second-quarter earnings guidance, which came in below market estimates. 
Image source: Getty Images.

So what
Cognex has three key end markets; its traditional core market is automotive, closely followed by consumer electronics, and lately the fast-growing logistics (e-commerce warehousing) market. Given the well-documented supply chain issues around semiconductor shortages, it’s no surprise that Cognex’s automotive and consumer electronics customers are being cautious over ramping up spending on production lines in 2022.
Moreover, the war in Ukraine has also hurt the supply of crucial components in the automotive industry, leading to cuts in production and downgrades to vehicle production expectations. 
Now what
The second-quarter guidance is incredibly disappointing because Cognex tends to see a ramp-up in orders in the second and third quarters in anticipation of customers gearing up for increased production in the fourth quarter. Unfortunately, the current challenging conditions create a lack of visibility into order flow in a crucial period for the company.
As a result, there will be question marks around the company’s year until things clear up. On a brighter note, Cognex’s technology remains in demand, not least as part of the move toward automated production, and it will surely get back to growth at some point — something to look forward to.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cognex. The Motley Fool has a disclosure policy. –

What happened 

Shares in machine vision company Cognex (NASDAQ: CGNX) fell by almost 14% this the week as of midday Tuesday. The move comes after investors continue to digest a disappointing first-quarter 2022 earnings presentation. 

It’s not that there was anything wrong with the earnings themselves but rather that investors were worried by management’s disclosure that its growth is slowing and automation projects are taking “longer to deploy.”

The negative commentary fell into the company’s second-quarter earnings guidance, which came in below market estimates. 

Image source: Getty Images.

So what

Cognex has three key end markets; its traditional core market is automotive, closely followed by consumer electronics, and lately the fast-growing logistics (e-commerce warehousing) market. Given the well-documented supply chain issues around semiconductor shortages, it’s no surprise that Cognex’s automotive and consumer electronics customers are being cautious over ramping up spending on production lines in 2022.

Moreover, the war in Ukraine has also hurt the supply of crucial components in the automotive industry, leading to cuts in production and downgrades to vehicle production expectations. 

Now what

The second-quarter guidance is incredibly disappointing because Cognex tends to see a ramp-up in orders in the second and third quarters in anticipation of customers gearing up for increased production in the fourth quarter. Unfortunately, the current challenging conditions create a lack of visibility into order flow in a crucial period for the company.

As a result, there will be question marks around the company’s year until things clear up. On a brighter note, Cognex’s technology remains in demand, not least as part of the move toward automated production, and it will surely get back to growth at some point — something to look forward to.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cognex. The Motley Fool has a disclosure policy.

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