ATS Automation is in no-man’s land right now, this investor says

Having delivered handsomely over 2020 and 2021, shareholders of ATS Automation (ATS Automation Stock Quote, Charts, News, Analysts, Financials TSX:ATA) are probably less happy this year, as the stock is currently down about 20 per cent. And while the long-term prospects and sector tailwinds are still pointing in ATS’ favour, it may take a while for shares to start heading north again. That’s according to Scotia Wealth Management’s Greg Newman, who thinks there are better places to put your money to work in the current market.

“[ATS Automation] was a top pick of ours a little ways back and it had a nice run-up  and we took something off and it came back down. It’s probably a no-man’s land right now,” said Newman, senior wealth advisor at Scotia Wealth, who spoke on BNN Bloomberg on Thursday.

Cambridge, Ontario’s ATS Automation is a custom automation and integration solutions company with over 6,000 employees worldwide at over 50 manufacturing facilities. ATS gained the market’s attention over the pandemic, as the stock rose from around the $20 mark at the start of 2020 to $50 by the end of 2021. But that’s when the pullback began, bringing ATA down to $35, although there’s been a recent recovery to $40.

Newman says ATS’s business is likely to continue to do well in the current environment, if not its share price.

“It’s a great company. Lots of re-shoring opportunities, a decent growth rate, it’s priced well and has a good balance sheet. But technically it’s had a big run,” he said.

“I think this is a great name over the next three to five years but with all the erosion that we’ve seen in the market, I think there’s probably more interesting places to park capital right now where you’re going to get more immediately rewarded,” Newman said.

Ahead of ATS’ quarterly results due on August 10, the company last reported earnings in May where its fourth quarter fiscal 2022 saw revenue climb by 50.8 per cent year-over-year to $603.2 million and net income rise 67.6 per cent to $39.9 million. Adjusted profit almost doubled from $0.34 per share to $0.64 per share. 

Management noted the company’s order bookings stood at $2.456 billion compared to $1.626 billion a year earlier, while ATS’ order backlog was at $1.438 billion at the end of the Q4 compared to $1.160 billion a year earlier.

“Fourth quarter performance featured record revenues, strong Order Bookings and continued adjusted EBIT margin expansion as core operations and new acquisitions combined to deliver value in a complex and volatile global environment,” said Andrew Hider, CEO, in a May 19 press release. 

“Our emphasis on serving regulated industries, the size and diversification of our Order Backlog, and the rigorous application of the ATS Business Model by our dedicated teams position us well for the start of our new fiscal year,” he said.