Shares of the leading manufacturer of mechanized cleaning equipment Holding (T.N.C. -4.99%) were down 5% today as of 4 p.m. ET Friday, according to data provided by S&P Global Market Intelligence.

The Dividend King reported its third quarter results on Thursday afternoon and slightly missed analysts’ expectations on both the top and bottom line, causing the stock price to fall today .

Tennant focuses on autonomous mobile robots

Although Tennant’s sales and adjusted earnings per share growth of 3% and 4% during the quarter may seem disappointing, investors have reason to be optimistic.

First, the company focus on the manufacturing of autonomous mobile robots (AMR) designed for cleaning and scrubbing seems to be gaining ground. Earlier this year, Tennant launched its all-new AMR cleaning machine – the X4 ROVR – and has already recorded more than 2,200 sales of AMR units in 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 transition to a technology-intensive offering. Now accounting for 5% of the company’s total sales in the first nine months of 2024, these AMR units are particularly valuable to investors, as they provide the company annual recurring revenue from software subscriptions.

This recurring revenue is in addition to other near-recurring sales, such as parts, consumables and services, which represent 36% of Tennant’s sales.

Second, while Tennant’s 3% third-quarter sales growth doesn’t appear to offer market-beating upside, the company’s cheap valuation may show otherwise. Connecting Tennant’s free cash flow to a reverse flow discounted cash flow calculator shows that the company only needs 3% sales growth in perpetuity to justify its current stock price.

So is Tennant a buy?

As the company announces an increase in its AMR manufacturing capacity due to a large influx of orders, investors should not overreact to the situation. King of dividendsThe drop in the stock price today.