ATS Automation Tooling Systems Inc: The Future of Advanced Manufacturing

Robots & Automation Will Drive the Factories of Tomorrow

While the U.S. has been attempting to rebuild its manufacturing sector and drive job growth, rival China has been advancing the use of automation in the manufacturing process.

Increasingly, companies have been adopting advanced automation in manufacturing, using robots and software.

During the Democratic presidential debates, candidate Andrew Yang warned about the impact of automation on manufacturing jobs. The thing is, though, automation helps companies improve efficiency and generate cost savings.

An intriguing play on the automation technology segment is ATS Automation Tooling Systems Inc. (TSE:ATA, OTCMKTS:ATSAF), a developer of automation solutions worldwide.

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ATS Automation stock is up by 45% year-to-date and 77% year-over-year.

The following chart shows ATSAF stock moving into a bullish golden cross pattern in December 2020, followed by an upside trade gap in February 2021.

Chart courtesy of StockCharts.com

ATS Automation stock is currently looking to break out of a sideways channel.

My view is that the strong tailwinds in the automation space are a bullish sign, and that they will provide investors with long-term appreciation.

Strong Growth Supports Bull Case for ATSAF Stock

ATS Automation Tooling Systems Inc.’s financials are reported in a fiscal year ending in March.

The company reported four consecutive years of revenue growth, to a record CA$1.4 billion in 2020.

Fiscal YearRevenues (Billions)Growth
2017CA$1.01N/A
2018CA$1.1210.4%
2019CA$1.2512.3%
2020CA$1.4313.8%
2021CA$1.430.15%

(Source: “ATS Automation Tooling Systems Inc.” MarketWatch, last accessed June 7, 2021.)

Analysts estimate that the company’s revenues will accelerate by 36.0% to CA$1.9 billion in 2022 and by 8.1% to CA$2.1 billion in 2023. Based on the consensus analysis, ATS Automation trades at an attractive 1.4 times its 2023 revenue estimate. (Source: “ATS Automation Tooling Systems Inc. (ATA.TO),” Yahoo! Finance, last accessed June 7, 2021.)

At the same time, ATS Automation has generated earnings before interest, taxes, depreciation, and amortization (EBITDA) income in five years straight. From 2018 to 2020, the company’s EBITDA growth rate was higher than its revenue growth rate.

Fiscal YearEBITDA (Millions)Growth
2017CA$104.3N/A
2018CA$138.232.5%
2019CA$166.720.6%
2020CA$196.417.8%
2021CA$187.7-4.4%

(Source: MarketWatch, op. cit.)

The company was profitable in each of the past five fiscal years, based on generally accepted accounting principles (GAAP) earnings per share (EPS).

Fiscal YearGAAP Diluted EPSGrowth
2017CA$0.38N/A
2018CA$0.5031.6%
2019CA$0.7550.4%
2020CA$0.57-23.9%
2021CA$0.6921.3%

(Source: MarketWatch, op. cit.)

On an adjusted basis, ATS Automation is expected to improve its profitability from CA$1.07 per diluted share in 2021, to CA$1.50 per diluted share in 2022, to CA$1.84 per diluted share in 2023. (Source: Yahoo! Finance, op. cit.)

ATS Automation delivered positive free cash flow in four of the past five fiscal years, including a record CA$163.6 million in 2021, up by 751.8% from 2020.

Its ability to generate free cash flow provides ATS Automation Tooling Systems Inc. with financial flexibility. This could involve capital expenditures, dividends, share buybacks, or debt reduction.

Fiscal YearFree Cash Flow (Millions)Growth
2017CA$118.0N/A
2018CA$39.8-66.2%
2019CA$106.5167.4%
2020-CA$25.1-123.6%
2021CA$163.6751.8%

(Source: MarketWatch, op. cit.)

Analyst Take

Institutional ownership in ATSAF stock is decent, with 95 institutions holding a 66.7% stake in the outstanding shares of ATS Automation Tooling Systems Inc. (Source: Yahoo! Finance, op. cit.)

If the current movement toward automation plays out, I would expect ATS Automation stock to return above-average capital gains.