ATS Automation is a good buy-and-hold stock, this investor says

Manufacturing systems company ATS Automation Tooling Systems (ATS Automation Stock Quote, Chart TSX:ATA) is in the right market at the right time, says Ryan Modesto of 5i Research, who points to the company’s growing backlog as a sign of their success.

Cambridge, Ontario-based ATS has been a high flyer over the past 12 months, with its share price almost doubling since last September. The latest jump came yesterday as the stock rose seven per cent in reaction to ATS’ acquisition of KMW, a German supplier of custom micro-assembly systems used in electric vehicles. The $30-million deal will add to ATS’ bag of tools, says CEO Andrew Hider.

“The EV market is one of strategic significance to ATS,” Hider said in a press release. “Having the capabilities that KMW offers, in-house, will enhance our offering in the EV market, while reducing supplier risk.”

Modesto says ATS is well-positioned to reap the rewards of both further automation in manufacturing and the rise of the electric vehicle.

Is ATS Automation stock too expensive to own?

“You have shift where a lot of companies are moving to electric vehicles and you have a change where a lot of lines are going to automation. So two really big trends going on in the manufacturing space, and everybody needs to now switch their lines over to meet this and ATS is a company that can do this for them,” Modesto told BNN Bloomberg recently.

ATS announced its fiscal first quarter 2019 financials on August 15, featuring slight consensus beats on revenue ($300.0 million versus the expected $298.8 million) and earnings per share ($0.22 versus the expected $0.21). The company’s order backlog as of the period end July 2 was $789 million, a 16 per cent year-over-year increase.

“[ATS’ stock] is expensive but the reason is that they have a good, growing backlog,” says Modesto. “We think their strategy is working out well and they’re focused on the right things. A five-year timeline is the right timeline for this company. If they miss a quarter, it’s going to get hit because of the higher valuation, but things look like they’re playing out really well for ATS and they’re doing a good job.”