Cognex trades at $60.45 per share and has stayed right on track with the overall market, gaining 12.1% over the last six months. At the same time, the S&P 500 has returned 14.3%.

Is there a buying opportunity in Cognex, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Is Cognex Not Exciting?

We’re passing on Cognex for now. Here are three reasons why there are better opportunities than CGNX, plus one stock we’d rather own.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Cognex’s 2.1% annualized revenue growth over the last five years was sluggish. This was below our standards.

2. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Cognex, its EPS declined by 2.5% annually over the last five years while its revenue grew by 2.1%. This tells us the company became less profitable on a per-share basis as it expanded.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

Over the last few years, Cognex’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Cognex isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 32.8× forward P/E (or $60.45 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. We’d suggest looking at the Amazon and PayPal of Latin America.

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