The ARK Autonomous Tech & Robotics ETF’s [ARKQ] share price has taken flight over the past year, smashing through a series of record highs. The latest of these came on 25 January, when ARKQ’s share price hit an all-time high of $94.27 during intraday trading. This equates to a 259.94% hike from the ETF’s 52-week low of $26.19 recorded on 18 March 2020, a week after the World Health Organisation declared COVID-19 a global pandemic.
ARKQ invests in companies focusing on five innovative technologies, which the fund’s managers believe are key to revolutionising global industrial and manufacturing sectors. These are autonomous transportation, robotics and automation, 3D printing, energy storage and space exploration.
What’s next for the ARKQ ETF’s share price?
On the positive side, the companies focusing on these new technological improvements and advancements in scientific research, or those that will benefit from them, have the potential to outperform for the foreseeable future.
For example, autonomous vehicles are likely to see “explosive growth due to their strong competitive advantages”, says Seeking Alpha’s Juan de la Hoz.
Robotics are important in the automotive industry and should also benefit from the same trends, while storage companies are developing technologies that underpin these products, and should also offer significant growth potential.
De la Hoz does issue a word of warning, however, highlighting the contrast between stock valuations and share prices, which have grown exponentially during the pandemic, while underlying revenue and earnings growth has been relatively muted. He picks out the revenues and earnings per share (EPS) for three of the fund's top six holdings (Materialise [MTLS], Trimble [TRMB], and Deere) as prime examples of this dichotomy.
Rising share prices combined with stagnating revenues and earnings is a cause for concern. For example, if a “speculative bubble” is taking place, we could see these stocks pull back sharply. De la Hoz suggests the ARKQ fund “is an outstanding long-term investment opportunity, but that the possibility of a significant correction is quite high as well”. With an eye on the longer-term potential, the fund is a strong buy for de la Hoz.
"[ARKQ] is an outstanding long-term investment opportunity, but ... the possibility of a significant correction is quite high as well" - Juan de la Hoz, Seeking Alpha
What’s the outlook for ARKQ’s top three stocks?
The top-three weighted stocks in the ARK Autonomous Tech & Robotics ETF are currently Tesla, Materialise and Baidu. Individually, these stocks have performed impressively over the last year, though analysts paint a more measured outlook. All figures cited are correct as of 28 January.
Elon Musk’s US electric vehicle and clean energy company makes up 11.41% of the ARKQ fund. The stock entered the S&P 500 index in December 2020, instantly becoming one of its biggest constituents, having gained an impressive 662.18% in the last 12 months. Analysts have an average target of $312.40 on Tesla’s share price, suggesting the stock could potentially fall 63.85% from its current level (through 27 January’s close). There are currently eight buy, 13 hold and twelve sell ratings on Tesla’s share price, for a consensus hold rating, according to MarketBeat.
Making up 4.96% of the ARKQ ETF, Materialise NV, headquartered in Leuven, Belgium, is one of the largest and earliest-established independent companies in the 3D printing/additive manufacturing sector, with over 25 years of 3D printing experience. It offers a range of software solutions and 3D printing services for the medical and manufacturing industries. Over the past 12 months, its share price has increased 245.01%. Analysts are cautious, however, offering a $36.93 price target, representing a 43.75% decline on 27 January’s closing price. With three hold and one underweight rating according to the Wall Street Journal, the stock’s current consensus rating is hold.
Trimble Navigation, which constitutes 4.27% of the ARKQ fund’s holdings, hardware, software and services tech provider, caters largely for the agricultural, geospatial and construction sectors. Over the past 12 months, Trimble has gained 53.68% (to 27 January’s close), but analysts seem to think it is well priced currently, with the average target of those tracking the stock on Yahoo Finance just 1.45% below its 27 January close. That said, four analysts apiece rate Trimble a strong buy and buy, while six suggest holding.