The Growing Pains At HollySys Are Real, But The Potential Is Worthwhile

Growth is seldom as smooth or easy as investors want it to be, and that has certainly been true with Chinese automation and control systems company HollySys (NASDAQ:HOLI). Competing with the likes of ABB (NYSE:ABB), Honeywell (NYSE:HON), and Siemens (OTCPK:SIEGY) is hard enough all on its own, but HollySys has to overcome the added burden that even other Chinese companies don't really trust domestic suppliers in industrial automation. Making matters worse, HollySys's train control business is largely tied to the unpredictable and inconsistent ordering habits of China Railways Corporation (or CRC).

HollySys shares have fallen about 15% since I last wrote about the company, as HollySys did in fact see the prolonged slowdown in automation and train controls that concerned me then. Although the market took that development badly, my long-term outlook really hasn't changed that much. I continue to believe that as HollySys matures it will deliver revenue growth around 6%-7% and double-digit FCF growth sufficient to support a fair value in the low $20s.

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The Growing Pains At HollySys Are Real, But The Potential Is Worthwhile