Brooks Automation (NASDAQ: BRKS)

Brooks Automation - A company primed for the technology of tomorrow

What We Love:

  • Brooks provides automated manufacturing solutions to two incredibly fast growing industries

  • Brooks robotics technology for the semiconductor industry positions the company for massive growth

  • Brooks has a proven track record of 40 years of success

  • Unlike most companies in the industry Brooks pays a dividend

  • The Biden administration’s commitment to supporting US research companies should give Brooks access to government resources

What We Don’t Like:

  • Brooks is highly valued with a PE ratio of 93

  • Brooks is located in incredibly competitive industries

  • Brooks has low profit margins

Full Write-Up:

Brooks Automation (NASDAQ: BRKS) provides automated manufacturing equipment to semiconductor makers, containment devices and other high-tech science lab equipment. It also provides gene sequencing and therapy solutions through its subsidiary GENEWIZ. Through these products Brooks is positioned as a key part of the semiconductor and biotech industries. These two industries are critical to the modern world and growing rapidly. As a key supplier to these industries Brooks is primed for massive growth.

Brooks has a 40 year long history of success in the semiconductor industry. Starting in 1978, the company originally provided the tools necessary to build the basic semiconductors used in computers at the time. Today, both semiconductors and the manufacturing products Brooks supplies are much more complex than they were in 1978. Brooks semiconductor products include automated robotics, high tech vacuum containers to ensure semiconductors don’t get contaminated and specialty machines designed for precision at an atomic level. These products are incredibly specialized and a necessary part of creating a semiconductor. With semiconductors being a critical component of computers, phones, cars and even household appliances, Brooks products are in incredibly high demand. This is reflected in the 31% year over year revenue growth of Brooks semiconductor revenue. Considering the current semiconductor shortage and the increasing need for semiconductors, we at People’s Capital believe Brooks semiconductor products will create massive growth for the company.

Brooks Life Sciences division is the second key part of the company’s revenue. Under this segment the company provides high tech containment devices and specialty lab tools to biotech companies across the globe. It also does gene sequencing and gene therapy through its subsidiary GENEWIZ. Much like its semiconductor solutions, Brooks lab offering products are incredibly specialized and a necessary part of high tech labs. As biotech continues to grow, Brooks’ lab products will only increase in demand. At the same time, Brooks taps into the growing genomic space with GENEWIZ, which works to sequence genomes and find cures to some of today’s toughest diseases with gene therapy. With this dual approach of offering necessary lab components to biotech companies and working on gene therapies itself, Brooks capitalizes on the promise genomic treatments in the future offer while simultaneously profiting from the research necessary to bring about that future today. We at People’s Capital are really impressed by this business model because, unlike most biotech companies who are only successful if they make rare and important scientific discoveries that can be monetized, Brooks profits from its lab offerings while GENEWIZ works to make these important discoveries.

On top of the rapid growth Brooks promises for investors, the company also pays a quarterly dividend. This makes Brooks an especially compelling investment in both the semiconductor and biotech industries since companies in both industries typically do not pay a dividend. At the same time, Brooks also stands to benefit if the Biden Administration's ambitious infrastructure bill passes. The bill promises over $30 billion biotech research and another $37 for semiconductors. As a part of both of these industries, Brooks stands to receive significant money for R&D and greater production of semiconductor manufacturing tools from the US government if the bill passes.

While Brooks is a compelling investment, there are some risks to be aware of. As a company, Brooks trades relatively expensively, with a price to earnings ratio of 93. Brooks is also located in two highly competitive industries where sudden changes in fortune based on innovation and resources often occur. As such, investors in Brooks must be aware that, while Brooks has a 40 year history of success, a swift change in downturn is always possible. Finally, Brooks has a hard time turning revenue into profit. With a profit margin of only 8%, Brooks is worse than other companies in the sector at turning revenue into profit. Luckily, this is a fixable problem and one that can increase Brooks’ profits without having to actually grow its business.

Bottom Line:

We at People’s Capital believe Brooks is a promising growth company. Located in two incredibly fast growing industries, Brooks provides unique exposure to the semiconductor industry by offering automated manufacturing products to semiconductor makers across the globe. Brooks life sciences division is also promising and provides significant revenue. Looking forward, we at People’s Capital expect revenue in both segments to grow rapidly. As such, we believe Brooks automation is a compelling investment for the future and promises significant investor returns. It should be noted that this is a long term position, on a 2-4 year horizon. In the short term, depending on stimulus, the state of the pandemic, and general instability in the market, Brooks could see declines before rising.


The People's Capital Team

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