The demand for Comet’s products is secular allowing the company to put forward ambitious but realistic growth targets, such as an annual revenue growth rate of 12.5% through 2020. Of a particular interest is the projected growth in net income and margin as illustrated by the following chart below.



Background Information
 
COMET AG was founded in 1948 as “Gesellschaft für elektronische Röhren AG” by Gerhard Steck in Berne-Liebefeld, Switzerland when a group of start-up investors put up the sum of CHF 1.5 million for the production of fixed anode x-ray tubes for medical applications. This was in response to bottlenecks in x-ray tube production for medical applications immediately following World War II.
 
Today, The Comet Group, which is based in Flamatt, Switzerland, boasts annual sales of CHF 332.4 million. With a presence across the globe the Group employs about 1,230 people worldwide, including about 440 in Switzerland. It operates production facilities in China, Denmark, Germany, Switzerland and the USA, and maintains other subsidiaries in the USA, China, Japan and Korea.
Comet is a technology leader across several fields of competency, which has allowed the company to create a well-diversified product portfolio, as explained in more detail below categorized by technology:

  •  X-ray and CT
X-ray technology and computed tomography are technologies applied to non-destructive testing in industries such as automotive and aerospace. Comet’s innovative x-ray systems, computed tomography systems and 3D imaging software enable customers to accurately and rapidly inspect even the tiniest parts for defects and thus assure quality in their production processes.

  • Radio Frequency

Comet’s radio frequency technology powers the production of the touchscreens and memory chips found everywhere today in sensors, PCs, smartphones and tablets, as well as in large server farms. The strong growth in volumes of data transfer is driving demand for more and more powerful storage media. The fabrication of the associated new generation of chips requires ever more rapid and precise plasma deposition. Comet's high-quality vacuum capacitors, impedance matching networks and radio frequency generators are ideally suited to this use. Similarly, resource-saving technologies such as solar cells and LEDs are only made possible by deposition techniques based on the latest radio frequency technology, which the COMET Group develops under the Comet brand.

  • Ebeam

Ebeam technology helps to markedly cut resource consumption in, for instance, the sterilization of beverage packaging. In addition, it enables important resource-saving alternatives to conventional manufacturing processes, thus making these processes more profitable. Under the ebeam brand Comet sells compact ebeam sets and complete ebeam systems for the treatment of surfaces in the food and printing industries.
 
The following chart shows the split of Comet’s revenue by type of technology. As can be seen, there is a material degree of diversifaction in the sources of revenue with respect to technology.



Investment Case
 
To put it in a nutshell, the Comet Group comprises an attractive investment proposition for the following reasons:
 

  • Technology leader with products for highly relevant applications

  • Double digit revenue growth through 2020

  • Strongly improving margins and profitability (up to 14.3% from 12.7% in 2016, above guidance)

  • Extensive upward revisions of price targets by analysts (current upside to the analyst consensus target: 9.2%)

Valuation
 
At first sight, with a 2018 PE ratio of 23.8x Comet Group is not a cheap stock. However, given the company’s technology leadership in highly relevant industries and applications, a significant valuation premium relative to the market average clearly is warranted. The average analyst price target currently stands at CHF 131, i.e. 9% above the current price level. We expect upward revisions to continue over the next couple of years. If the company’s growth and profitability continues to accelerate and beat expectations, investors should aim for CHF 150, which is equivalent to an upside of 21% compared to the current stock price. An additional growth catalyst could enter into force when the company will surpass the CHF 1 billion mark with its market capitalization, for which it will need only a 7% appreciation. Once the CHF 1 billion mark is reached, interest from institutional investors can be expected to increase.