Rising Costs And Tariff Risks Will Squeeze Margins

Key Takeaways

• Deglobalization, geopolitical risks, and talent shortages threaten to increase costs, limit market access, and constrain operational efficiency and earnings growth.
  
• Rising vertical integration, supplier development, and industry pricing pressure may reduce Comet's addressable market, compress margins, and dampen long-term revenue potential.
  
• Expanding end-markets, innovation leadership, and strategic growth in Asia position Comet for long-term revenue stability, premium margins, and greater exposure to recurring high-value opportunities.

Catalysts

Provides X-ray and radio frequency (RF) power technology solutions in Europe, North America, Asia, and internationally.

• Persistent deglobalization of supply chains and the shift toward nearshoring may significantly increase Comet Holding's manufacturing and sourcing costs, particularly as the company commits to major CapEx projects like its Penang, Malaysia facility, putting long-term pressure on net margins and return on invested capital.
  
• Heightened geopolitical uncertainty, including rising tariffs and protectionist trade policies, threatens to restrict Comet's access to key growth markets-especially China and the United States-which could severely dampen revenue growth and undermine expansion into high-growth Asian regions.
  
• Increasing vertical integration among global semiconductor customers, as well as accelerating domestic supplier development in China, poses a growing risk that demand for third-party inspection and RF power systems could diminish, shrinking Comet's addressable market and reducing top-line revenue potential over time.
  
• Sustained talent shortages and demographic headwinds in core operating regions are likely to drive higher wage inflation and constrain Comet's ability to scale innovation, which could erode operational efficiency and suppress earnings growth for the foreseeable future.
  
• Industry-wide downward pricing pressure, driven by both commoditization and the adoption of alternative (non-X-ray/RF) inspection technologies, is expected to compress gross margins and limit Comet's ability to sustain premium pricing, negatively impacting both revenue and long-term profit margins.

Comet Holding Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Comet Holding compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Comet Holding's revenue will grow by 12.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 8.1% today to 14.9% in 3 years time.
• The bearish analysts expect earnings to reach CHF 101.1 million (and earnings per share of CHF 12.95) by about August 2028, up from CHF 38.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 15.8x on those 2028 earnings, down from 41.4x today. This future PE is lower than the current PE for the GB Electronic industry at 34.3x.
• Analysts expect the number of shares outstanding to decline by 0.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.25%, as per the Simply Wall St company report.

Comet Holding Future Earnings Per Share Growth

Risks

• Global acceleration of digitalization, AI adoption, electrification, and Industry 4.0 initiatives is set to drive robust demand for advanced semiconductor testing and inspection solutions, expanding Comet's addressable end-markets and supporting long-term revenue growth.
  
• Strategic expansion in Asia, including investments in a new Malaysian manufacturing facility and strengthened commercial presence in key markets like China and Japan, is likely to improve scalability and profitability, while broadening Comet's customer base and supporting sustained top-line growth.
  
• Ongoing innovation in core products (such as Synertia and CA20) and strong customer co-creation partnerships indicate that Comet is maintaining its technological leadership in high-value markets, enabling premium pricing and protecting margins over the long term.
  
• The semiconductor industry's secular expansion-with volume and complexity in wafer fabrication expected to rise and global re-shoring trends increasing localized demand-positions Comet to benefit from elevated equipment spending, bolstering revenues and EBITDA in future cycles.
  
• Growing demand for advanced inspection due to regulatory, automotive, and defense sector requirements, along with recurring digital service offerings (e.g., predictive maintenance, software licensing), should increase Comet's exposure to high-margin, recurring revenue streams, helping stabilize future earnings and profitability.

Valuation

• The assumed bearish price target for Comet Holding is CHF196.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Comet Holding's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF390.0, and the most bearish reporting a price target of just CHF196.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CHF678.3 million, earnings will come to CHF101.1 million, and it would be trading on a PE ratio of 15.8x, assuming you use a discount rate of 5.3%.
  
• Given the current share price of CHF207.2, the bearish analyst price target of CHF196.0 is 5.7% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.