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Does This Automation-Focused Stock Belong in Your Portfolio?

Much has been written on the waves of automation sweeping across the world. Automation has the potential to reshape society for the better and also lead to destabilization as various modes of work performed by humans is pushed aside. The hope is that the political class will be capable of meeting these challenges and adequately preparing the population as they occur.

Back in September, I’d recommended investors take a hard look at ATS Automation (TSX:ATA). ATS Automation is a Cambridge-based company that provides automation systems. It specializes in factory automation, but also provides pre-automation solutions and planning services.

Shares have climbed 71% year-over-year as of afternoon trading on August 23. The stock is up 40% in 2018. Its successes this year have raised some concerns about overvaluation as we look ahead to September. Is the stock still a solid buy today?

ATS Automation released its fiscal 2019 first-quarter results on August 15. Revenues rose 14% year-over-year to $300 million and earnings from operations increased to $27 million compared to $21.3 million in the prior year. EBITDA also climbed to $36.8 million from $30.2 million in Q1 fiscal 2018. Order bookings were 35% higher from a year ago at $358 million and the order backlog hit a record $789 million.

ATS Automation saw the largest revenue increases in its consumer products & electronics and energy market segments, which rose 81% and 70%, respectively. The consumer products and electronics segment is primarily related to warehousing automation. Adjusted earnings jumped and were only weighed down by higher general and administrative expenses and higher selling.

By themselves, these numbers are very encouraging for those eyeing ATS Automation. What about the growth trajectory of factory automation itself?

Back in February I’d discussed a report on automation from the McKinsey Global Institute. It described the rise of automation in three waves; algorithm, augmentation, and autonomy. The augmentation wave involves the automation of repeatable tasks, the exchanging of information through dynamic technological support, and unstructured data analysis.

In May, Research and Markets provided a report on the global factory automation and industrial controls market. The report projected that this market was valued at around $217 billion in 2017 and would grow to approximately $381.7 billion by 2023. This represents a compound annual growth rate (CAGR) of 9.81%.

Is ATS Automation a buy today?

ATS Automation currently boasts top shelf price/earnings in comparison to its market competitors. The company has continued to post impressive quarterly earnings and its order backlog is approaching the $1 billion mark. Shares were down 2.11% in early afternoon trading on August 23. Although it is priced at all-time highs, investors should be eager to look for entry points. The stock should exhale post-earnings in the coming weeks, which provides an opportunity to scoop up shares in a company that will benefit from the massive growth projected by this industry.

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Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

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