Tuesday, June 19, 2018

Automating Chinese Factories Has Sent Yaskawa Electric On A Wild Ride

When I last wrote about Japanese automation company Yaskawa Electric (OTCPK:YASKY
) (6506.T) in the spring of 2017, I thought it was a good way to play a long-term trend in factory automation and particularly in the growing adoption of automation in China. I thought the shares were somewhat undervalued, but little did I expect the shares to triple in nine months! Since peaking in January, the shares are down about 30%, but there is still a wide spread of opinions on the sell-side regarding the fair value for these shares.

I love the Yaskawa story, and I do think the company stands to generate a lot of growth from the automation of Chinese factories. That said, I simply cannot reconcile today's valuation with any likely earnings/cash flow trajectory or relative valuation approach. The current average sell-side price target would seem to require long-term FCF growth in the high teens on an annualized basis (or a rather low discount rate), while the current share price works back to a mid-teens growth. Although not impossible to reach, I don't think that level of expectations leaves much, if any, room for error or disappointment.

Read more here:
Automating Chinese Factories Has Sent Yaskawa Electric On A Wild Ride

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