Daily Archives: February 21, 2018

Technology

3 Robot Stocks To Buy And Hold For The Long Term

The robot revolution is here.

Right now, everyone is buzzing about artificial intelligence, automation, and robotics.

Amazon.com, Inc. (NASDAQ:AMZN) is trying to pioneer an era of cashier-less stores in the United States. Alibaba Group Holding Ltd (NYSE:BABA) and JD.Com Inc(ADR)(NASDAQ:JD) are trying to do the same in China. Amazon is also automating its warehouses — and so is JD. Alphabet Inc (NASDAQ:GOOGL) is making huge strides in the automated driving space. The fast food industry is rapidly moving towards automation.

Indeed, everywhere you look, there are signs that the robots are coming.

Is your portfolio prepared for this forthcoming robotics revolution?

Here are my three favorite robot stocks that are solid holdings for a long-term oriented investor

2.) iRobot Corp.

The company behind the mega popular Roomba vacuum, iRobot Corporation (NASDAQ:IRBT) is the undisputed king of the robotic vacuum world.

Although some IRBT bears have been concerned about rising competition, the company has successfully deflected those concerns en route to consistent 20%-plus revenue growth every single quarter.

And that is expected to continue over the next several years.

iRobot plans on launching several new products in 2018, thereby growing its reach in the consumer robotics world. Rumors are that a robotic lawnmower is in the works. Then, there will likely be a robotic window cleaner, a robotic surface cleaner, a robotic trash remover… the list of potential new products goes on and on.

Therefore, IRBT is the best of the robot stocks to buy for a pure-play on the whole consumer robotics market. This is a market projected to grow at a 20%-plus rate into 2023, meaning that IRBT’s revenue growth should remain in excess of 20% over the next several years.

Meanwhile, gross margins continue to grow despite the emergence of lower-priced competitors. Gross margin resiliency speaks to IRBT’s dominance, and illustrates that the company has powerful long-term margin drivers in place.

Altogether, this is a 20%-plus revenue growth narrative with strong margin drivers, implying earnings growth prospects in excess of 25%. But IRBT stock trades at just 28-times forward earnings, implying a price-to-earnings/growth (PEG) ratio of 1.1 The market is at a PEG of 1.2, so not only is this a promising growth stock, but its also an undervalued growth stock.

2.) Intuitiive Surgical Inc.

Just like iRobot is the undisputed leader in the secular growth consumer robotics space, Intuitive Surgical, Inc. (NASDAQ:ISRG) is the undisputed leader in the secular growth surgical robotics market. At the heart of ISRG is the da Vinci surgical system, which is essentially an exceptionally-precise robotic doctor’s arm in the operating room.

The da Vinci system has been a huge success. Global procedures grew by 16% last year, while shipments rose 27%. Moreover, growth accelerated towards the back half of the year, implying that the da Vinci system is still gaining momentum. Global procedures grew by 17% last quarter, while shipments rose a whopping 33%.

These da Vinci systems are big and costly machines. But they are also exceptionally valuable. And there really isn’t any major rival in the market. So ISRG has flexibility with pricing, which translates into big gross margins. ISRG currently operates at gross margins slightly north of 70%, and that is where they have been for several years.

Given tremendous pricing power and lack of stiff competition, there aren’t any signs of margin compression on the horizon.

But the ISRG growth narrative is more than just the da Vinci system. Robots are taking over medical rooms. This is a secular growth market that is expected to grow at a 20% clip over the next 8 years. That means ISRG’s big growth is here to stay for the long term.

The one knock on ISRG stock is that its expensive. Even if earnings growth over the long term does stay at 20%, ISRG stock is trading at a rather rich 43-times forward earnings. That gives the stock a PEG of more than 2.

But the balance sheet is rock solid, the moat is huge and the addressable market is larger. That feels like enough to justify the rich valuation. Consequently, ISRG stock should continue to trend higher as the surgical robotics market continues to grow.

3.) Cognex Corp. 

As it turns out, robots have to see, too. That is where machine vision comes into play. Machine vision is the technology which gives machines “eyeballs” for automated inspection and analysis.

The leader of this market is Cognex Corporation (NASDAQ:CGNX). Cognex has been around for a while (almost 40 years), but growth has been booming recently thanks to a surge in integration of vision-guided robotic systems across multiple industries. As it relates to Cognex, the three biggest industries are consumer electronics, automotive and logistics. All of these posted double-digit growth last year.

CGNX just reported a record year for revenues and profits. Revenue surged 44% higher while operating margins expanded 400 basis points.

This growth will inevitably slow, but its not going to zero anytime soon. The machine vision market, led by a surge in vision-guided robotic system usage, is expected to grow around 10%per year into 2025. But CGNX is the market leader and has higher exposure to the high-growth segments of the market, like automotive. Its no wonder, then, that CGNX revenue growth is pegged in the low- to high-teens range over the next several years, along with expected earnings growth of 27%.

But CGNX stock trades at just 37-times forward earnings, implying a PEG ratio of 1.4. That is pretty good for a hyper-growth robotics stock. Its also pretty good for a company with a cash-heavy balance sheet, a bunch of share buybacks in the pipeline, and a solid dividend.

Overall, CGNX stock looks like a long-term winner.

As of this writing, Luke Lango was long IRBT. 

Buffett just went all-in on THIS new asset. Will you?
Buffett could see this new asset run 2,524% in 2018. And he's not the only one... Mark Cuban says "it's the most exciting thing I've ever seen." Mark Zuckerberg threw down $19 billion to get a piece... Bill Gates wagered $26 billion trying to control it...
What is it?
It's not gold, crypto or any mainstream investment. But these mega-billionaires have bet the farm it's about to be the most valuable asset on Earth. Wall Street and the financial media have no clue what's about to happen...And if you act fast, you could earn as much as 2,524% before the year is up.
Click here to find out what it is.

Source: Investor Place 

Uncategorized

A Simple Way to Assess Startup Risk

Dear Early Investor,

Startup valuations are tricky.

This is due to the difficulty of assessing illiquid young companies with measly track records but exciting technologies and/or business models.

But you still have to pay attention to them. Why?

The valuations you begin with heavily influence the profits you end up with.

Which is why I always ask founders what their company’s valuation is… and how they arrived at it.

The wrong answer – an inflated valuation – is a deal breaker.

Enter the Berkus Method

Last Friday, I was talking to a founder who was telling me why his social engagement company was such a great investment.

Its value? “Five million dollars,” he said.

The startup was pre-revenue. And it was ramping up downloads at an impressive rate.

When I asked him how he arrived at a $5 million valuation, he said he used the “Berkus Method.”

I’ve heard of the DCF method, Risk Factor Method, Scorecard Valuation Method, Comparable Transaction Method, First Chicago Method and Venture Capital Method.

But the Berkus Method?

That was a new one.

When the founder explained it to me, it sounded pretty simple. Rather elegant, actually.

But I needed to know more. A company’s valuation is too important to depend on somebody’s two-minute explanation.

So I did some digging.

And you know what? The Berkus Method is worth knowing.

It’s a four-factor valuation formula. These same factors also give you a nice framework to assess the investment opportunity in terms of current risk and chances of future success.

This is what I found out…

Version No. 1

Dave Berkus created the first version.

Dave is a startup investor and author. He came up with his method in the mid-1990s, he said, to “help with the imprecise problem of how to value early-stage companies.”

His method gained prominence when it was published in the book Winning Angels in 2001.

It identifies four major risks that startups face: technology, execution, market and production. A startup can be credited in each of these areas with a maximum of $500,000 for reducing risk.

Plus, the startup automatically gets $500,000 for the idea itself.

If it earns a perfect score, its valuation tops out at $2.5 million.

Here’s the Berkus Method summed up in a chart…

Version No. 2

In 2005, Berkus’ method was tweaked by Alan McCann. He visualized the Berkus Method this way…

McCann replaced technology risk with investment risk and replaced production risk (making a product) with development risk (developing a product).

He also added the cohort responsible for each. “A nice touch,” Berkus said.

Its Current Use

The Berkus Method is meant for pre-revenue companies.

In the mid-1990s, when the method was created, that mostly meant seed companies.

Times have changed, though.

Nowadays, seed-stage companies usually generate revenue.

Used to determine seed valuation, the methodology yields valuations that are too low.

In a November 2016 blog post, Berkus agreed. He said that his method should create valuations that users “are willing to accept in a perfect situation.”

In our First Stage Investor portfolio, the lowest startup valuation is $2.7 million. That startup – Court Innovations – is one that Adam and I consider a huge bargain.

Most of our seed company valuations fall between $4 million and $10 million.

The Berkus Method is best suited for pre-revenue, pre-seed companies.

Take, for example, the founder I was talking to last week. He used the Berkus Method pre-seed. He was seeking his first angel investments and used the max $2.5 million valuation.

Now he’s raising again – in a seed round. And he’s upped the valuation to $5 million based on the progress his company has made in the four risk areas Berkus identified as key.

Rather than have each category be worth $500,000, he doubled them.

Sounds about right to me.

Valuations Matter

Progress and valuation: Alone, they’re impossible to decipher.

Taken together, one gives meaning to the other.

Nice progress at an exorbitant price isn’t a great investment.

A good price for mediocre progress isn’t such a great deal either.

Berkus says his valuation method only works if the startup reaches at least $20 million in revenue within five years.

Let’s say, conservatively, that this translates into a $100 million company (five times revenue).

That would place the startup in the upper third percentile of exit valuations. Two-thirds of startups do worse…

What can a $20 million-in-revenue company do for you?

If you invested in the company at a $2.5 million valuation, your profit would be 40X without dilution and roughly 20X including dilution.

Remember, only one out of three of your holdings would reach at least $100 million.

In a portfolio of nine holdings (to keep the math simple), with one out of three of your holdings reaching at least $100 million, you’d have three big winners.

If you invested $1,000 in each holding (again, keeping the math simple), you’d net a minimum of $51,000 for a portfolio of startups that cost you $9,000.

That’s nearly 7X in profits – or more.

At a $5 million valuation (which I think is more realistic), your total return would be cut in half. The profits from your three winners would go from 20X each to 10X each (counting dilution).

That’s exactly what Berkus had in mind. He said…

There is no question that startup valuations must be kept at a low enough amount to allow for the extreme risk taken by the investor and to provide some opportunity for the investment to achieve a 10-times increase in value over its life.

I agree.

Extreme risk should beget extreme rewards.

The math says when it’s used to invest at the right valuations, the Berkus Method does just that.

Invest early and well,

Andy Gordon
Co-Founder, Early Investing

Can a $10 Bill Really Fund Your Retirement? The digital currency markets are delivering profits unlike anything we’ve ever seen. ​23 recently doubled in a single week. And some like DubaiCoin have jumped as much as 8,200X in value in 18 months. It’ unprecedented... but you won’t receive any of the rewards unless you put a little money in the game. Find out how $10 could make you rich HERE. ​



Source: Early Investing