As a company that generates the lion's share of its revenue and
profits from capital spending in China, the last year has not been an
easy one for HollySys (NASDAQ:HOLI) (also sometimes written as "Hollysys"). Like Siemens (SI) (OTCPK:SIEGY), Rockwell (NYSE:ROK), ABB (NYSE:ABB),
and the rest of the factory and process automation sector, HollySys has
seen a sharp correction in demand for automation systems. While the
rail system business has offset this to some extent, here too orders
have been inconsistent.
It's difficult to strongly recommend a
stock that is so heavily exposed to capital spending in China at a time
when China's economic outlook is still murky at best. Patient value
investors will argue that that's the time you want to go shopping, and
while I agree with that sentiment, the reality is that investors
considering HollySys's shares need to brace themselves for the
possibility that the business hasn't yet bottomed and that there could
be downside risk ahead of a recovery. I still believe that this company
can be a high-single-digit grower over time, though, and the stock
should trade closer to the mid-$20s.
Continue here:
China's Economic Challenges Making Life More Difficult For HollySys
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