A Refocused FARO Is Looking To Drive Better Results From Its Strong Metrology Capabilities

FARO Technologies (NASDAQ:FARO) gets included in discussions of those companies that could benefit as industrial end-markets become more automated, but the path hasn't been smooth so far. Although FARO has stronger share in industrial metrology products like arms and trackers, and has done well with its market entry into 3D scanners, the share price performance over the last five years has been poor (down more than 20%) while Perceptron (NASDAQ:PRCP), Hexagon (OTCPK:HXGBY)(HEXAb.ST), and Cognex (NASDAQ:CGNX) have done considerably better. This isn't entirely unfair either, as the company's revenue growth has been lackluster (less than 4%) and operating margins have weakened.

The company's interim CEO (and co-founder) has been shaking up FARO's operating plan, with a new focus on six primary verticals and improved expense leverage. I am concerned about the growth that management can expect from the auto and aerospace end-markets, but I believe there are worthwhile opportunities in other industrial metrology markets, as well as 3D scanning. I believe the market is currently pricing in around 10% long-term FCF growth, which seems reasonable, but this is a name worth keeping an eye on, as the shares can be volatile around earnings reports.

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A Refocused FARO Is Looking To Drive Better Results From Its Strong Metrology Capabilities

Perceptron Still Searching For Stability

As an industrial tech geek, Perceptron's (NASDAQ:PRCP) industrial metrology technology holds more than a little interest for me, as well as the revenue and earnings potential that would come from successfully unlocking the opportunities outside of the auto OEM sector. Add in the fact that industrial automation giants like Rockwell (NYSE:ROK), ABB (NYSE:ABB), and Schneider (OTCPK:SBGSY) have openly talked of the importance of sensors in the evolving automation landscape, and it's at least worth taking a look at this company.

Unfortunately, the performance at Perceptron has been disappointing for quite a long time. As other Seeking Alpha writers, including Terrier Investing, have noted, this is a company that has been struggling for traction for some time. Perceptron had $65 million in revenue in 1997, $62 million in revenue in 2007, and is on pace for around $75 million in 2017. The company has never really generated meaningful free cash flow, and despite periodic runs in the stock, the last 10 years have been lackluster at best with other similar types of plays like FARO (NASDAQ:FARO) and MTS Systems (NASDAQ:MTSC) at least offering some share price growth over the last decade.

Perceptron has some interesting technology and technological capabilities, but I question whether the company has the resources to develop them to a point where it can be any meaningful threat to companies like FARO, Hexagon (OTCPK:HXGBY), and Zeiss (OTCPK:CZMWY) outside of its core auto market. I can't and won't rule out the idea that a larger automation company (or one of its main competitors) could move to buy Perceptron, but I would caution investors to listen to industry leaders like Rockwell when they talk about the challenges of transferring automation technologies across industry silos.

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Perceptron Still Searching For Stability