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BRAZIL – 29 June 2020: The Rockwell Automation logo is shown on a… [+] smartphone in this photo illustration. (Image courtesy of Rafael Henrique/SOPA Images/LightRocket/Getty Images)
Getty Images/SOPA Images/LightRocket
Rockwell Automation stock (NYSE: ROK) has gained about 20% since the beginning of the year, and at $291 per share, we feel Rockwell Automation stock has a potential downside of more than 10%.
What is the reason for this? Our belief is based on the fact that Rockwell Automation’s stock has increased about twofold since the end of 2018, and after a mixed recent results pattern, we believe Rockwell Automation’s stock may be headed lower. What Factors Caused A 94 Percent Change In Rockwell Automation Stock Between 2018 And Now, According To Our Dashboard? gives the essential numbers that underpin our approach, and we go over them in greater detail below.

Trefis in Stock Prices

Despite a 5% reduction in revenues from $6.67 billion in FY 2018 to $6.31 billion in the last four quarters (Rockwell’s fiscal year ends in September), the stock price of Rockwell Automation has risen since 2018. However, a 7% decline in the number of outstanding shares resulted in a 2% increase in RPS (revenue per share) from $53.20 in FY 2018 to $54.20 in LTM.
Furthermore, Rockwell’s P/S (price-to-sales) ratio increased from 2.6x in 2018 to 4.6x by the end of 2020, and is now at 5.4x. Given Rockwell’s mixed recent earnings performance, we feel the P/S multiple faces a possible negative risk.
ADDITIONAL INFORMATION FOR YOU
So, what’s the most likely cause of this downturn and when will it happen?
As a result of the global spread of the coronavirus, demand for computing and semiconductor equipment fell across a wide range of businesses. Demand has recently increased, as seen by Rockwell’s Q2 2021 earnings report, which showed revenue of $1.78 billion, up from $1.68 billion in Q2 2020. Furthermore, with cost of sales and operational expenses rising at a slower pace, pre-tax income increased by 3x from $167 million in Q2 2020 to $508 million. EPS increased from $1.14 to $3.57 throughout this time due to a marginal decline in the effective tax rate.
However, revenues in FY 2020 (at $5.66 billion) appear to be modest when compared to those in FY 2018 and FY 2019, which both came in around $5.93 billion. Despite demand and revenues increasing year over year in Q2 2021, we feel Rockwell’s overall revenue and earnings pattern since FY 2018 does not justify such a high P/S multiple. While Rockwell’s FY 2021 earnings (expected in November 2021) will provide more clarity, we believe that the stock’s P/S multiple will decline from its current level of 5.4x to 4.6x in the near term, which, despite being supported by a slight increase in revenues and margins, could result in the stock price falling to as low as $255, a drop of more than 10% from its current level.
While Rockwell Automation’s stock may fall, it’s important to know how it compares to its peers. Rockwell Automation vs. Peers summarizes how Rockwell Automation stacks up against its competitors on key criteria. Peer Comparisons has a lot more of these kinds of valuable comparisons.
Here you may find all of Trefis’ Featured Analyses and Trefis Data./nRead More

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