Analysts are increasing their EPS estimates for this electronics company. The company’s earnings are expected to grow at an annual rate of 30% over the next five years.
Allied Motion Technologies Inc. (AMOT)
From SmallCap Informer
Allied Motion designs, makes, and sells precision and specialty-controlled motion products and solutions, including DC motors, servo drives, motors, gearing, and controllers. These are used in a broad range of industries within the company’s four segments: Vehicle, Medical, Aerospace & Defense, and Industrial.
The Vehicle segment was 31% of Q1 2021TTM sales, and includes products for off- and on-road construction and agricultural equipment, trucks, buses, RVs, lift trucks, marine, recreational (ATVs) and utility vehicles. Near-term demand for products in this segment is quite strong,
The Industrial segment was responsible for 30% of sales, delivering products for factory automation, material handling, robotics, industrial tools, semiconductor equipment, and the oil and gas industry.
24% of sales were in the Medical market, for medical devices and equipment, surgical robotics, and patient handling and patient mobility. Products and equipment in these markets include respiratory ventilators, kidney dialysis machines, heart pumps, wheelchairs, scooters, stair lifts, patient lifts, transport tables, and hospital beds.
Finally, 10% of sales were to Aerospace & Defense markets, including commercial aviation, aerospace systems, defense systems, unmanned aerial vehicles, and NASA. Products here are used in weapons systems, security and access controls, camera systems, door access controls, and airport screening and scanning devices.
Allied Motion was founded in 1939, and had its IPO in 1969. It is headquartered in Amherst, N.Y., has global operations and sells into markets across the U.S., Canada, South America, Europe, and Asia. The company’s growth strategy is focused on being the leader in its selected target markets by leveraging its technology to develop integrated precision solutions that change the game” and create higher value solutions for its customers.
Allied Motion’s products and solutions are sold into a global market with a large and diverse group of competitors that vary by product, geography, industry, and application. Management’s near-term outlook indicates demand is strong in its Medical segment, with recovery in surgical robotics underway and some residual demand from the pandemic in place. High demand for powersports is driving its Vehicle segment, and improving conditions are increasing activity in its Industrial and A&D segments.
Revenues since 2011 have grown at a 15.9% average annual rate, while EPS growth is a bit choppier and just 11.0%, held back some by 2020’s slowdown.
That 2020 slowdown appears to be history. In the second quarter ended June 30, 2021, revenues were up 17.2% over the Q2 2020, and EPS jumped 60.0% to $0.32 from the weakened year-ago quarter. Backlog increased 12% over the first quarter of 2021 and 33% quarter-over-quarter to a record $170.4 million. The time to convert the majority of backlog to sales is approximately three to six months.
Analysts who cover Allied Motion on Wall Street are optimistic about its prospects, projecting 30% average EPS growth over the next five years. We have ratcheted that down to a much more conservative 11.0% for revenues and 13.0% for EPS growth.
Allied Motion’s pre-tax profit margin was 5.1% in fiscal 2020, slipping in large part due to the pandemic. In the three year prior to that, pre-tax profit margins averaged 6.5%. Margins began to recover in the first and second quarters of 2021 to 5.8%. By comparison, the average margin of the Electronic Components industry is currently 6.1%.
The company’s debt is relatively high, but levels have declined as a percentage of equity in both fiscal 2019 and fiscal 2020.
From a recent price of $33.75, we calculate that the stock could reach $79 and is a buy up to $39. Our downside price is $25, and the current price represents a reward/risk ratio of 5.4:1. The potential total annual return with a small dividend is 18.8%.
Doug Gerlach, Smallcapinformer.com, 1-877-33-ICLUB, September 2021