Could AMETEK (AME) be The Frontrunner in The Electronic Space?

I mean the company’s got big hands-on growing numbers. Its continuous interest in growth markets is bulking up free cashflows.

Majorly, it’s a top player in providing industrial technology solutions across 31 countries in the world. AMETEK produces devices for measuring the capacity of products in Aerospace, Medicals, Power, Energy, laboratories (like the extensometers used in measuring strain in materials), research and industrial markets.

It also produces medical devices, automation solutions, thermal management systems to regulate device temperature for reliability, specialty metals mostly used by military service, and electrical wires for aircraft.?

I’d call it its testing (Electronic Instruments) and products (Electromechanical) group respectively.

AMETEK has spent $2.23 billion on strategic acquisitions.?

Under the businesses it recently acquired, Paragon Medical a firm that produces medical and surgical instruments for orthopaedic operations, invasive, robotic surgery together with drug intake systems like the oxygen delivery devices. Like the instruments used in checking blood pressure.

Bison Gear & Engineering is a company into motion control systems. It offers the automation technology that accelerates the production processes at the power, food & beverage, and transportation industries. It could support Tesla’s automation systems.

United Electronics Industries (UEI) deals with data acquisition and control systems specifically for aerospace, defense, energy and semi-conductor industries. Technically, they could provide information on the fastest route to Japan from London and devices used for cybersecurity purposes.

The Amplifier Research company offers instruments for increasing sound volume; used for enhancing audio, communicate information to a mass number of people (like at the airports), they could be used in cars to support speakers in getting cleaner and more defined sounds.

It’s also into radio frequency and EMC testing; wireless transfer of information (like the WIFI systems) coupled with ensuring an electronic device function properly without having an adverse effect on its environment.

The last among the list is InnoRIID. It offers instruments used in protecting nuclear assets. The radiation detecting instruments are used in preventing theft, sabotage or unauthorized access to valuable assets.

Research institutes, and innovation driven organisations could use these devices to protect high technologies. These organisations could cut across medicals, health, aviation, and industrials.?

Back to my thoughts on the company being the front runner in the electronic space. Well, it could be. The company has shown a proven track record of success at yielding billion-dollar values in income. I mean, we could take a look at the companies it recently acquired, these are world class.

Having a business heavily invested in electronics to serve the world through the food, healthcare, aviation, internet, automotive, energy industry and much more puts it at the forefront.

Obviously, AMETEK has competitors, but are they thriving like this global giant? If you’d ask me, I’d say results don’t lie. Though, its major competitors; like Eaton Corporation (ETN) and Emerson Electric (EMR) possess double margins way above 10%, its numbers are still ahead at 24%.

I think that’s quite enough to settle as the Front runner in the electronic space. The electronic industry could be tasking (capital intensive wise) and the most innovative or efficient comes up on top. AMETEK’s one of those guys.

Though Eaton Corporation (ETN) has spent over $1 billion on capital investments in accelerating electronic solutions, AMETEK’s ruthlessness at acquisitions and operational efficiency should keep its statements more optimal than competitors.

2023 was all bolstered on solid performance. AMETEK must have seen the impressive year coming. Net sales increased its worth to about $6.6 billion toping up previous result with $400 million. I guess it's having more fun under its Electronic Instruments segment.

The Paragon Medical acquirer poured over an extra $239 million into operations.

AMETEK has been brutal at keeping up with a billion-dollar profit line; minimally increasing value by 14% last year. Acquiring new companies, and having higher sales aren’t a bad thing.

I think AMETEK’s various business segment in different countries cuts out a lot of risks in terms of product demand, unfavourable instances (like natural disasters) and the growth that comes from tapping into new markets.

The multinational is into Viscometers; they are used to measure the thickness of fluids. And are used mostly in the food, chemical, and glass manufacturing industries. Last year, AMETEK recently got a patent on these new devices (along with other devices) giving it the right to produce and distribute without other competitors been involved.

With its patents (intangible assets), and forever operating efficiency model, strong competitive advantage resides on the table, widening its moat.

AMETEK bought back 8,323 shares in December 2023 at $143.46 (1.3x fair value as at that time), increasing shareholders gain as of now. (As we well know managements repurchase of shares at value-accretive prices is highly beneficial to owners)

If you are worried on coverage strength and consistency, AMETEK’s EBIT line has crushed interest costs by 16 times on a 5-year arithmetic term. It also retained $1.07 billion in 2023; technically, it is allocating the remaining earnings into great growth prospects as $1 retained creates $39.15 in market value (these change from time to time).

December 2023 was on the hills. I’m not really sceptical about AMETEK keeping up with its current growth rate as with recent acquisitions, I should expect more offerings and increased sales giving its lurking around more business space.

Its sales for last year’s quarter were $1.73 billion and here are the nice parts; 6% aggregate increase from 2022’s Q4, 7% in electronic instruments, and 4% in electromechanical.

I am well aware more purchases, recent acquisitions, and operating performance contributed a lot to its success.

Let’s talk about cashflows, $541 million? That’s what it has in store. These numbers have always been on high; $473 million in Q3 2023, and 40% higher compared to 2022’s last quarter; with total asset under $15 billion. ?

In decades to come, there should be more advanced instruments to support surgeries, assisting doctors in their various operations. Greater demand, higher pricing and better margins should boost profits under its orthopaedic operation device business segment. The same cuts across other segment like the Amplifier Research company it recently purchased.

The world is currently heavily automized (tech industry specifically). I mean what business wouldn’t want to get efficient, slicing out cost through automation. I expect more demand for this segment over the years.

UEI spreading its data and control services across various industries would stack a lot of cashflows on AMETEK’s chest.

With incessant innovations and more yet to come in the future, demand for nuclear asset protection devices (the likes of AMETEK’s radiation detection instruments) should sky rock.

AMETEK’s really playing the long GDP contribution game. It might be hard to crush this conglomerate (future advancements are really on its side).

Management is confident in AMETEK’s growth model; they think their ending 2024 result should be slightly higher than 2023. Given the value AMETEK adds to its industry space, plus the American Tailwind, it should thrive and uncertainty on business outcomes is always a forever course.

With respect to the future, there should be more competitors coming into the space, existing ones are also innovating and landing heavy on R&D, in the end whoever gets ruthless the most in serving customers and managing its operations gets the winning banner (in terms of margins, profitability and returns).

Though it also has competitors in the S&P 400 space, but their products are very quiet differential; into power batteries, electric motors, optical materials and so more.

But the company’s got cash resources, leverages on it by acquiring other companies to complement its offerings in the electronic space, and tries to improve its process towards operational efficiency.

These aren’t the worst strategies for doing business; bad results should be far from its table.

It lays emphasis on its growth model to facilitate increased value for the company. AMETEK tries to stay ahead of the industry through operational excellence, global expansion, new product development and strategic acquisitions. 25% of last year’s sales came from products launched three years ago; evidence its R&D segment is really viable.

Its highly geared on growth. In 2023, it invested an extra $100 million in research, development and engineering to fuel its continuous quests on innovation.

Under wealth growth, an $100 invested in 2014 would have increased to $327.6 by now; a 12.6% compound growth rate. Businesses that do extremely well do enjoy future value growth and being loyal to them is crucial for investing success.

Management currently has about $1.9 billion worth of shares in its possession. I think a reasonable stake and consistent buy backs of shares is a sign they are personally invested; meaning, they should manage the company like its theirs.

The company has been paralleled on exceptional performance, enjoying strong growth. Strategic acquisitions have been raising investors’ value on the street. I witnessed a compound increase in share value by 13.6% (dating back to 2020)

On the 9th of February 2024, AMETEK increased its quarterly dividend from $0.05 per share to $0.28 per share.

Shareholders have a lot of benefits on the table; Afterall, bottom line’s solid enough to serve its re-investing needs and owner’s entitlements (talking about dividends).

AMETEK stock (to me) seems slightly expensive, trading close to 5x book value and about 1.69x fair value estimate. Though market fluctuations and future earnings could create opportunities for its common share purchases, I think its alternatives may be a better bet for now.

Disclaimer: please note insights are from a rational and realistic point, due diligence is necessary.