This Growth Stock Has Room to Run in 2024: Why Cognex Could Surprise Investors

John Smith

Cognex Corporation (NASDAQ: CGNX) has faced challenging conditions in 2022 and 2023, with the machine vision technology company seeing declines across its major end markets.

However, there are signs Cognex could bounce back strongly in 2024 as conditions improve. Here’s why this growth stock has more upside potential.

Cognex’s Key End Markets Faced Headwinds in 2022 and 2023

Cognex develops machine vision systems that use artificial intelligence and deep learning to optimize manufacturing processes across several industries. The company gets revenue from three primary end markets: consumer electronics, automotive, and logistics.

In 2022, all three markets faced economic pressures that led to reduced demand for Cognex’s products and services.

The consumer electronics market slowed down significantly as consumers pulled back spending on discretionary purchases amid high inflation.

Cognex’s machine vision systems help optimize manufacturing of items like smartphone displays and panels. But with consumer electronics demand dropping, manufacturers invested less in new production systems.

Cognex’s automotive market also declined, outside of the electric vehicle and EV battery segments. Overall auto sales dropped as high interest rates hindered demand. In response, automakers scaled back production and reined in capital expenditures.

This directly impacted Cognex, which supplies machine vision tech to monitor and control production lines.

Finally, Cognex’s logistics market crashed after several years of hyper growth. The pandemic-driven e-commerce boom led to massive investment in warehouse automation and robotics systems, which utilize Cognex’s solutions. But e-commerce growth slowed in 2022, causing a pullback in warehouse spending.

Growth Is Projected to Resume in 2023 and Accelerate in 2024

The confluence of these negative trends meant 2022 was a disappointing year for Cognex. Wall Street analysts estimate the company’s revenue will decline 17.5% for the full year 2023.

However, there are signs growth could resume next year and pick up speed in 2024 across all of Cognex’s core markets.

In consumer electronics, while macro conditions remain uncertain, companies cannot delay investing in new products indefinitely. As inflation falls from 40-year highs, demand is expected to recover in late 2023. This should lead manufacturers to boost capital investment in 2024.

Cognex is well positioned to benefit, having strategic partnerships with leaders like Apple. Its machine vision solutions will be critical in optimizing production of the next generation of consumer electronics.

In automotive, EV and battery production remains a bright spot for Cognex, as electric models gain market share. Cognex’s auto revenue grew 15% year-over-year in Q3 2023, excluding legacy internal combustion engine programs.

As interest rates decline, overall auto demand is projected to recover in 2024. This will incentivize automakers to invest in upgraded factory systems, providing a tailwind for Cognex’s sales in the sector.

Logistics Market Poised for Rebound

Perhaps the most promising indicator for Cognex is recent data from the logistics industry. Warehouse automation leader Honeywell Intelligrated reported double-digit order growth in Q3 2023.

This suggests the pullback in e-commerce infrastructure spending has bottomed out. As macro conditions improve in 2023, logistics customers are expected to reaccelerate investments delayed from 2022.

Cognex’s logistics revenue could potentially bounce back to rapid growth levels in 2024. The need for automated fulfillment technology will remain strong as warehouses struggle with labor shortages.

This potential resurgence across all markets points to an inflection point for Cognex in 2024. The stock is still down over 45% from its three-year high, presenting an opportunity for investors before growth accelerates again.

The Bottom Line

2022 and 2023 brought several economic challenges that caused declines in Cognex’s major end markets. But the downturn looks to be temporary.

As inflation falls back from 40-year highs, there are signs of improving conditions heading into 2024. Cognex’s key sectors—consumer electronics, automotive, and logistics—are poised to resume investments in next-gen manufacturing systems.

With shares undervalued relative to historical levels, Cognex has substantial room for upside surprises when growth trends rebound next year. Now could be the time for long-term investors to take a position before the reacceleration gains steam.

Frequently Ask Questions

What does Cognex do?

Cognex is a machine vision technology company that develops systems using artificial intelligence and deep learning to optimize manufacturing processes. Their technology helps automate production and improve quality control across industries like consumer electronics, automotive, and logistics.

Why did Cognex struggle in 2022 and 2023?

In 2022, all three of Cognex’s major end markets faced economic challenges. Consumer electronics spending declined due to high inflation. Automotive manufacturers cut production with lower car sales. Logistics/ecommerce customers reduced investment after huge pandemic-driven growth. This perfect storm led to a revenue decline for Cognex.

How is Cognex positioned for a rebound?

While 2022 and 2023 was difficult, there are signs of improvement heading into 2024. Consumer spending should recover as inflation falls. Electric vehicle production continues to be a bright spot. Logistics customers appear ready to reaccelerate delayed projects. As macro conditions stabilize, Cognex’s key markets could drive a growth resurgence.

Why is now a good time to buy Cognex stock?

Cognex shares are down over 45% from their highs, presenting a compelling valuation. If its end markets recover as expected in 2023-2024, Cognex could bounce back strongly. Investors who buy at current lows could benefit from the coming upturn.

What are the risks for Cognex?

The main risks are if economic challenges drag on longer than expected. Extended high inflation, higher interest rates, or a recession could delay a rebound. However, markets expect conditions to improve, making Cognex a solid bet on future growth based on current valuations.

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John Smith is a veteran stock trader with over 10 years of experience in the financial markets. He is a widely followed market commentator known for his astute analysis and accurate predictions. John has authored multiple bestselling books explaining complex market concepts in simple terms for novice investors looking to grow their wealth through strategic trading and long-term investments.
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