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Shares of leading mechanized cleaning equipment manufacturer Tennant (NYSE: TNC) were down 5% today as of 4 p.m. ET Friday, according to data provided by S&P Global Market Intelligence.
The Dividend King announced third-quarter earnings late Thursday afternoon and slightly missed analysts' expectations on both the top and bottom lines, spurring today's share price drop.
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Tennant's focus on autonomous mobile robots
While Tennant's sales and adjusted earnings-per-share growth of 3% and 4% during the quarter may seem underwhelming, there are reasons for optimism for investors.
First, the company's focus on manufacturing autonomous mobile robots (AMR) designed for cleaning and scrubbing appears to be gaining traction. Earlier this year, Tennant launched its newest AMR cleaning machine -- the X4 ROVR -- and has already recorded over 2,200 AMR unit sales through the first three quarters of the year.
Prior to 2024, the company had only sold a total of 6,500 AMRs, demonstrating the company's accelerated shift toward the tech-dense offering. Now accounting for 5% of the company's total sales through the first nine months of 2024, these AMR units are particularly valuable to investors, as they bring the company annual recurring revenue from software subscriptions.
This recurring revenue comes in addition to other quasi-recurring sales, such as parts, consumables, and services, which make up 36% of Tennant's sales.
Second, though Tennant's 3% sales growth during Q3 may not sound like it offers market-beating potential, the company's cheap valuation may show otherwise. Plugging Tennant's free cash flow into a reverse discounted cash flow calculator shows that the company only needs to grow its sales by 3% in perpetuity to justify its current share price.
So is Tennant a buy?
With the company announcing expanded manufacturing capacity for AMRs due to heavy order inflow, investors shouldn't overreact to the Dividend King's decline in share price today.
Should you invest $1,000 in Tennant right now?
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