In this part of our series of articles about investing in robotics and automation, Brian Gahsman, managing partner and chief investment officer at GBSfunds, gives his view of how new inventors can change the market and what his company, Gahsman Branton, is interested in investing in
Robotics and Automation News: More “maker” and startup companies seem able to produce robotics and automation technology. How will this affect the market?
Brian Gahsman: We are barely on the cusp of seeing the flood of startups that will enter this space. Now that the technology is at a point of cost effectiveness many who for decades were only hobbyists now have the ability to bring their creations to the market.
As that trend increases so will the rate of M&A activity which we are already seeing with companies like Kuka as well as the recent acquisition of SLM Solutions and Arcam by GE in attempt to corner the market in metal based additive 3D printing.
Robotics and Automation News: Is investing in companies which offer industrial IoT solutions part of your agenda?
Brian Gahsman: Yes, being that IoT is basically the brain of the machine. However, I am not interested in investing in mega cap stocks like Cisco, GE, IBM etc. Instead I look for companies in this space who are creating new products that the larger companies are not meeting the demand for.
I prefer companies such as PTC Inc. (PTC) who is spending millions on developing system for the future with focus on industrial automation and augmented reality. Stock’s like PTC tend to dramatically outperform the larger more homogenous companies due to such intense focus on innovation and R&D.
Robotics and Automation News: Can you say what facts or figures help you make investment decisions? What is your investment style?
Brian Gahsman: I use a proprietary blend of analytic styles when selecting potential investments. The first thing that I look for in and company is innovation. What do they have that is different than what’s already out there? What is the potential demand for the technology? Is the company a one trick pony or does it have a diversified pipeline?
For larger established companies I first attempt to determine the market share as opposed to its competitors, if any, and what gives them a competitive advantage. I then analyze the valuation and fundaments of the company. I tend to avoid large companies with high P/E ratios regardless of potential growth. I also look for companies who maintain a high R&D budget focusing on what’s next instead of repackaging the same item until no more can be juiced from it.
I then look to technical analysis to determine long-term momentum, the stock’s relative strength against its benchmark, trends in trading volumes and high/low points. I am a fan of charts to say the least.
When it comes to startups or companies yet to have earnings I shift my analysis a bit. With these companies the potential demand and market potential of the innovative technology is most important.
I do not invest in companies with a market cap less than $50 million as anything that small tends to get stuck in patterns of both share dilution as well as extreme trading volume fluctuations due to “buy on the news” trading.
I like companies in the final stages of development, ready for production with a slowing rate of cash burn. Are there any big fish circling for a buyout? Fundamental analysis can be difficult with these companies but I definitely look at balance sheet data alongside estimated sales revenues.
For me to select a small startup company it must have a game changing product; I am not interested in companies who take an existing technology and just make it better. These smaller innovation based companies are prone to shorting attacks and extreme price volatility due to extending timelines or M&A chatter.
Technical analysis is a must in this situation, I need to completely understand the trading patterns and behaviors of the particular stock so that I am able to set a specific target price to exit the position. Not to be confused with a trader, these small stocks tend to sky rocket passing their feasible valuation when investors begin to pile in on each other.
I always have a price target and when the stock hits that point I’m out and it becomes someone else’s trade.