Cognex's (NASDAQ:CGNX) Q3: Beats On Revenue

Machine vision technology company Cognex (NASDAQ:CGNX) announced better-than-expected revenue in Q3 CY2025, with sales up 18% year on year to $276.9 million. The company expects next quarter’s revenue to be around $237.5 million, close to analysts’ estimates. Its non-GAAP profit of $0.33 per share was 13.5% above analysts’ consensus estimates.

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"I'm pleased to report Q3 was another strong quarter for Cognex," said Matt Moschner, President and CEO.

Company Overview

Founded in 1981 when computer vision was in its infancy, Cognex (NASDAQ:CGNX) develops machine vision systems and software that help manufacturers and logistics companies automate quality inspection and tracking of products.

Revenue Growth

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $971.7 million in revenue over the past 12 months, Cognex is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.

As you can see below, Cognex’s 5.1% annualized revenue growth over the last five years was decent. This shows its offerings generated slightly more demand than the average business services company, a useful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Cognex’s annualized revenue growth of 5.1% over the last two years aligns with its five-year trend, suggesting its demand was stable.

This quarter, Cognex reported year-on-year revenue growth of 18%, and its $276.9 million of revenue exceeded Wall Street’s estimates by 5.2%. Company management is currently guiding for a 3.4% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 6.8% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and implies its newer products and services will spur better top-line performance.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Cognex has been a well-oiled machine over the last five years. It demonstrated elite profitability for a business services business, boasting an average operating margin of 20.9%.

Looking at the trend in its profitability, Cognex’s operating margin decreased by 15 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Cognex generated an operating margin profit margin of 20.9%, up 7.4 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Cognex’s EPS grew at a weak 1.6% compounded annual growth rate over the last five years, lower than its 5.1% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

We can take a deeper look into Cognex’s earnings to better understand the drivers of its performance. As we mentioned earlier, Cognex’s operating margin expanded this quarter but declined by 15 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Cognex, its two-year annual EPS growth of 3.4% was higher than its five-year trend. Accelerating earnings growth is almost always an encouraging data point.

In Q3, Cognex reported adjusted EPS of $0.33, up from $0.20 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Cognex’s full-year EPS of $0.94 to grow 15.2%.

Key Takeaways from Cognex’s Q3 Results

We were impressed by how significantly Cognex blew past analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its full-year EPS guidance missed and its revenue guidance for next quarter was in line with Wall Street’s estimates. Overall, this print was mixed. The stock remained flat at $47.01 immediately following the results.

Should you buy the stock or not? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.