Brett Larson

speaker

455 appearances 2 recordings 1 series first heard Dec 2024 last heard Feb 2025

Brett Larson’s voice in public audio — every appearance, attributed to the second.

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Business Breakdowns · Cognex: Vision Quest - [Business Breakdowns, EP.207] · 26 Feb 2025 podcast

So the first one is we look at what's implied in terms of the future free cash flow growth to justify the current valuation.

So we do that by assigning an exit free cash flow yield.

out in the future and then have our internal hurdle rate, which is at least 10%.

Then we place that within just the range of outcomes for the business to assess the attractiveness.

And at present, we think, frankly, that COGNEX needs to compound free cash flow at more of like a low double digits rate over the long term.

That's below the long term model and also coming from a place that's at the low point of a cyclical down cycle with a lot of hopefully margin recovery ahead.

So that's the bull

Case.

The other way we look at it is the historic multiples.

And just given the margin dynamics, we specifically are looking at EB to net next 12 month sales is the relevant one for us.

Currently, it's within reach of its 10 year low at five and a half times next 12 month sales.

They traded as high as 16 times sales during ZERP, which is like most things, just hilarious in hindsight.

But otherwise a more normal range and

It's been more like six to ten times sales is where it's traded.

I think that's certainly a discussion.

Historically, we have seen margins decline in magnitude with cycles and they've always recovered back to thirty percent.

We just saw even in the last quarter where some growth returned to the business and

They grew more in the double digits organically and you can see the leverage that fell through in the quarter.

There's signs like that that we're watching.

That's certainly a debate on the name is what normalized margins will look like.

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