Shares of Tennant (TNC, Financial) have experienced a notable decline, falling by 4.99% following the release of third-quarter earnings that slightly missed analysts' expectations.
Tennant Company (TNC, Financial) is strategically focusing on the development and deployment of autonomous mobile robots (AMR) for cleaning and scrubbing operations. With the launch of the X4 ROVR, Tennant has achieved over 2,200 AMR unit sales in the first three quarters of the year. This marks a significant uptrend compared to the total sales of 6,500 AMRs prior to 2024, indicating a decisive shift toward high-tech product lines.
AMR sales now constitute 5% of Tennant's total sales for the first nine months of 2024, adding to their recurring revenue streams through software subscriptions. Additional revenue drivers include parts, consumables, and services which collectively contribute to 36% of the company's sales.
Despite a modest third-quarter sales growth of 3%, Tennant's valuation metrics suggest latent potential. The current price per share is $83.19, with a price-to-earnings (PE) ratio of 14.67, which is proximate to its one-year low of 14.9. The company's GF Value is estimated at $86.96, implying the stock is fairly valued.
Bolstered by a strong financial foundation, Tennant shows promise for future growth. The company only requires a sustained 3% sales increase to justify its existing stock price, as deduced from free cash flow analysis. Investors might find comfort in the company's long-term dividend growth and robust financial metrics, underscored by an Altman Z-score of 4.32, signaling strong financial health.
However, potential investors should remain aware of the short-term volatility the stock has faced, which is evident from a 9.22% year-to-date decrease. Despite this, Tennant's commitment to innovation and recurring revenue streams positions it well for future advancements in the industrial cleaning segment.
