Shares in machine vision technology company Cognex Corporation (CGNX 1.02%) fell by 18.6% in August, according to data provided by S&P Global Market Intelligence. There’s no debate about the catalyst for the move. Cognex’s second-quarter earnings report disappointed the market on the last day of July, and the stock declined heavily on the first day of August.

Near-term weakness

Machine vision technology has an excellent future ahead. After all, it helps automate complex processes, ensuring quality control while monitoring and guiding manufacturing in industries like automotives, semiconductors, and consumer electronics. Meanwhile, in logistics, it helps automate e-commerce shipping.

Its end markets are attractive over the long term, but many of them are weak in the near term, and that’s what’s hurting Cognex right now. For example, relatively high interest rates are curtailing automotive sales, and expectations for sales, production, and investment have been pared back this year. CEO Rob Willett noted on the earnings call that “macro sentiment has now declined again, and we have seen additional delays and reductions in EV projects.”

It’s a similar story in consumer electronics. “Consumer electronics has positive long-term trends, but we continue to have tempered expectation for investment in 2024,” Willett said.

As such, management’s guidance range calls for a slight decline in revenue from the second quarter to the third. As a reminder, Cognex tends to win large orders in the spring as its customers prepare to ramp up production in the fourth quarter, so it will not likely announce any large orders before the spring of 2025.

Image source: Getty Images.

The investment case for Cognex

That said, no long-term investor buys a stock for a few quarters of orders or sales, and the reality is the company is likely to return to a strong growth path given an improvement in the global economy. Lower interest rates will inevitably encourage automotive and consumer electronics sales (Cognex is strong in the EV battery industry and smartphone manufacturing, for example), and the long-term outlook for e-commerce sales growing as a share of overall retail sales remains positive.

Indeed, in a sign of what’s to come with automotives and consumer electronics in terms of cyclical recovery, Cognex’s logistics and semiconductor sales are growing strongly as those industries recover from cyclical slowdowns.

Is Cognex stock a buy?

As the chart below demonstrates, Cognex has always been a company with volatile revenue growth, but the long-term trend remains upward.

CGNX Revenue (TTM) data by YCharts

It has done so as the company opens up new markets and machine vision adoption grows. This trend is likely to continue, making the dip in the share price an attractive buying opportunity.