The balancing act between past performance and future opportunities is a tricky one, particularly when a company is implementing new business strategies and/or seeing meaningful new end-market opportunities. If you drive solely by looking in the rear-view mirror (focusing only on what a company has been), you’re going to have some problems. If you ignore what’s in the rear-view mirror, you’re also going to have some problems.
Test equipment and instrumentation specialist National Instruments (NATI) is an interesting case in point. The historical performance is not that exceptional – mediocre revenue growth little better than GDP growth, consistently okay FCF margins but no upward trajectory, and a trailing stock performance record that is pretty lackluster next to the S&P 500, let alone rivals like Keysight (KEYS).
Now the question is whether the future will be different. End-market opportunities like 5G (particularly mmWave) and auto electrification and autonomous driving are meaningful potential growth drivers, but a lot of the business is still linked to general economic cycles (as measured by the PMI). A focus on increased system sales and software should drive better margins, but there’s a lot to prove beyond “should”. Allowing that National Instruments certainly has room to surpass my expectations, I think the shares are at best reasonably priced today.
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National Instruments Looking To 5G, Autos, And New Strategic Priorities To Drive Better Results
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