One of my biggest concerns about HollySys Automation Technologies (HOLI)
(“HollySys”) for some time now has been the risk of this stock
performing more as a value trap than an undervalued play on China’s
automation and high-speed rail sectors. It is, after all, relatively
small and under-followed by the sell-side, and management’s
communication with the Street and investors has often been below
average. While the shares haven’t done too badly since my last update, they have lagged other large automation names like Emerson (EMR) over the past year and beyond.
The
value-vs-value trap debate remains the central issue I see with the
company. While management hasn’t made the expected (or perhaps “hoped
for”) progress in areas like expanding its rail operations outside
China, it has been gaining share in new verticals in automation and
there is still significant scope to grow the business just in China.
Modest growth assumptions can support a much higher share price, but at
least some of that is a bet on more consistent operations from a company
that has long struggled to do precisely that.
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Covid-19 Only The Latest Challenge For HollySys
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