Today we have a moderately speculative idea.: take stock of industrial components manufacturer Vishay Precision (NYSE: VPG), in order to earn on the growth of orders from this company.
Growth potential and validity: 13% behind 14 Months; 10% per annum during 10 years.
Why stocks can go up: demand for the company's products will grow both in the short term, as well as in the long run.
How do we act: we take shares now by 34,39 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
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And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark: as with the investment idea as a whole, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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Investment editorial office
What the company makes money on
The company designs and manufactures sensors and sensor technologies, as well as strain gauges and special resistors. According to the company's annual report, her income looks like this:
- Foil technology products — 48,79%. Technique Testing Devices. Segment gross margin — 39,5% from its proceeds.
- Force sensors - 19,91%. Sensors, allowing technicians to measure pressure, for example, to automate the process of dispensing drugs under a dropper. Segment gross margin — 25,3% from its proceeds.
- Weighing and control systems — 31,3%. Signal conductors, various software, Lasers, electronic displays. Segment gross margin — 45,8% from its proceeds.
Application of products by end areas:
- Transport - 11%.
- Industrial weighing - 16%.
- Equipment testing - 20%.
- Aerospace and defense industry — 12%.
- General industrial purposes - 6%.
- Steel production - 14%.
- Agriculture, construction, consumer goods, medicine and other markets — 21%.
Revenue by country and region:
- USA - 40,12%.
- United Kingdom — 8,57%.
- Other European countries - 20,26%.
- Israel is 8,08%.
- Asian countries - 16,09%.
- Canada - 6,88%.
Arguments in favor of the company
And to and fro. Companies are favored as current circumstances, and long-term trends. On the horizon of a year - a year and a half, its business will be helped by a combination of industrial recovery in the world with an increase in corporate spending on the renewal of fixed assets. We talked about this, for example, in ideas on EnerSys and Amphenol.
And in the long run, her business will grow thanks to the trend towards industrial automation., which we talked about in the idea for C3 AI. After all, sensors and other systems are, in fact, "Eyes" for technology. So I see Vishay Precision shares as a good investment for short-term, and for long-term investors.
Small size. The company has a capitalization of around $469 million, which is very small by the standards of the American market.. In this regard, the company's shares can grow strongly in case of high demand for them from investors..
Inexpensive. Company P / E 32 - that's a lot, but not too bold. A P / S she has less 2, which is very cheap.
Can buy. Think, with all the positives, noted above, the company may well be bought by a large industrial conglomerate.
Another Vishay. Until 2010 the company was a division of Vishay Intertechnology, and then went on a free voyage. But the word Vishay remained in the title, as well as the perpetual right to use Vishay Intertechnology patents. Worth noticing, what the larger Vishay Intertechnology has, which specializes in semiconductors, things are going very well.
Due to the increased interest in the field of semiconductors and, for example, in light of the upcoming GlobalFoundries IPO, we can expect, that interest in Vishay Intertechnology will also increase. Investors will easily confuse the two companies in the event of such news and pump up Vishay Precision quotes. This has already happened in 2020, when investors confused Zoom Video Communications with Zoom Technologies, pumping stocks last. This is a theoretical possibility, but it should be taken into account.
Also, I would not rule out the possibility, that Vishay Intertechnology may decide to buy Vishay Precision "back": it happens on the market too.
What can get in the way
Accounting. The company has 174.379 million dollars of debt, of which during the year you need to repay 51.431 million. There is enough money at her disposal to pay off urgent debts.: 73,456 million on accounts and 51.818 million debts of counterparties. But here we must also take into account, that the company's management plans to invest in business expansion, so the company's debt burden will remain quite heavy for a long time to come. This may scare some investors away from these shares., negatively affected quotations.
Shearing Vishay. If something extremely bad happens to Vishay Intertechnology, then this may negatively affect the quotes of our Vishay Precision, as investors can confuse the two companies. It needs to be understood and accepted..
Everywhere and nowhere. The company has business all over the world, and from above 80% its manufacturing facilities are located outside the United States. Considering, that the entire corporate sector now has big problems with the availability of raw materials, logistics and rising costs in general for everything, you need to be mentally prepared, that Vishay Precision's reporting may be affected by all these negative factors.
What's the bottom line?
You can take shares now by 34,39 $. And then there is 2 course of action:
- wait, when will the shares be worth 39 $. This is slightly less 40 $, who asked for shares back in July 2019, - I think, that with all the positive aspects, the company will come to this level in the following 14 Months;
- keep shares next 15 years. I do not think, that during this time such a small company will independently become a titan of the world of industry, - most likely, someone will buy it.
