Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – December 2016. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a stock analysis showing a specific look at how Cognex Corporation (CGNX) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Cognex Corporation (Cognex) is a provider of machine vision products that capture and analyze visual information in order to automate tasks, primarily in manufacturing processes, where vision is required. The Company’s machine vision products are used to automate the manufacture and tracking of discrete items, such as mobile phones, aspirin bottles and automobile tires, by locating, identifying, inspecting and measuring them during the manufacturing or distribution process. The Company’s products include vision software, vision systems, vision sensors and ID products. Its products range from vision sensors that are integrated, to personal computer (PC)-based systems for users. Its products have a range of physical forms, depending upon the user’s need. Cognex sells its products through a direct sales force, as well as through a global network of integration and distribution partners. Its service offerings include maintenance and support, consulting and training services.
Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation. In addition, here is a post detailing what can be found within each individual company’s valuation.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$5,407,132,121||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||7.68||Pass|
|3. Earnings Stability||Positive EPS for 10 years prior||Fail|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||774.78%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||42.28||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||5.93||Fail|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||7.68||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||0.00||Pass|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||15.00%|
|MG Value based on 3% Growth||$21.98|
|MG Value based on 0% Growth||$12.89|
|Market Implied Growth Rate||16.89%|
|% of Intrinsic Value||109.81%|
Cognex Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.64 in 2012 to an estimated $1.52 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 16.89% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into Cognex Corporation revealed the company was trading above its Graham Number of $19.54. The company pays a dividend of $0.29 per share, for a yield of 0.5% Its PEmg (price over earnings per share – ModernGraham) was 42.28, which was above the industry average of 22.64. Finally, the company was trading above its Net Current Asset Value (NCAV) of $5.21.
Cognex Corporation receives an average overall rating in the ModernGraham grading system, scoring a C.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||$5.21|
|Number of Consecutive Years of Dividend Growth||2|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||9/1/2016|
|Total Current Assets||$530,828,000|
|Total Current Liabilities||$69,074,000|
|Shares Outstanding (Diluted Average)||87,346,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$1.54|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.52|
Other ModernGraham posts about the company
None. This is the first time ModernGraham has covered the company.
Other ModernGraham posts about related companies
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.