Although new consumer technologies can capture a great deal of buzz, they are often just the tip of the tech iceberg. Many of the sector’s most lucrative developments occur completely behind the scenes.

For instance, many investors are unaware of the groundbreaking advances being made in machine vision systems. These relatively new, camera-based technologies essentially endow robots with the superhuman vision necessary for high-speed manufacturing, often with extremely small components. Coupled with the appropriate software, the technology enables robots to identify, assemble and inspect products far too fast for the human eye to follow.

The development of machine vision systems began more than half a century ago, but has only taken off in the past decade or so. In 2005, it was a $1.3 billion industry. Since then, machine vision has ballooned into a $4.5 billion market and is projected to more than double to $9.5 billion by 2020.

The best way to play the trend: Cognex Corp. (Nasdaq: CGNX). Shares of this technology leader have posted robust gains and still have plenty of room left to run.

Founded in 1981, Cognex sells machine vision systems that facilitate the production of cars, mobile devices, drugs and packaged foods, among many other products. The firm’s top customer is Apple, Inc. (Nasdaq: AAPL), at 14% of revenue.

Some of its other big customers include auto makers Saab (OTC: SAABF) and Ford Motor Co. (NYSE: F); pharmaceutical firm Eli Lilly & Co. (NYSE: LLY); consumer electronics giant Sony Corp. (NYSE: SNE); and auto parts provider Dana Holding Corp. (NYSE: DAN).

The factory automation market, long Cognex’s bread and butter, has helped boost company sales at a 23% average annual pace since 2009. In 2014, revenue from this market soared 41% to nearly $400 million, or 82% of the company’s total sales base.

Last year, Cognex obtained 12% of revenue from manufacturers of mass-produced materials like metal, paper and plastics. These customers need vision systems to find surface defects on finished materials.

Remaining sales (6%) were from firms that incorporate vision systems into their own products, typically equipment used to make semiconductors or assemble printed circuit boards. Revenue from these two markets rose 14% and 18%, respectively, in 2014.

During the past three years, Cognex posted operating and net margins of 30% and 25%, respectively, compared with the industry averages of 13% and 9%. Returns on assets and equity are far above average, too.

Scale advantages are key to the firm’s outperformance. As a relatively large participant in a fragmented field, Cognex typically commands more resources than rivals, giving it a major leg up on product development, marketing, distribution and overall cost-efficiency.

Historically, management hasn’t been big on acquisitions, typically preferring to pursue organic growth through research and development (R&D). Out of the $508 million in capital spending over the past decade, only $122 million was used for acquisitions and the remainder went to R&D.

The $386 million allocated to R&D has led to consistent output of new and upgraded products. In 2014, Cognex completed nine product rollouts. These mainly focused on the factory automation market, as that is where management sees the greatest expansion potential.

Among the latest introductions: a new color-sensitive sensor for parts identification and an upgraded portfolio of 3-D sensors, with functions such as coordination of factory floor activity, parts inspections and the detection of food packaging defects.

#-ad_banner-#Last year, Cognex also released an upgrade of a compact smart-camera vision system as an alternative to more complex and costly PC-based vision systems. With a 200 image-per-second capability, the upgrade is twice as fast as its predecessor and thus better suited for the highest-speed bottling and pharmaceutical production lines.

While factory automation is the firm’s main market, management also sees promise in logistics — product movement through the supply chain, from initial acquisition to end-market distribution. In this sector, there’s growing demand for Cognex’s handheld barcode reader. The device uses an image-based technology capable of reading damaged or distorted barcodes that standard laser-based readers would be unable to process.

After delivering record results in 2014, the firm expects a strong start to this year. First-quarter guidance includes roughly 20% year-over-year revenue growth and mid-70s gross margins, which is at the top of the historical range.

Longer-term, Cognex is set to benefit from economic stimulus in Europe and Japan; nearly half of revenue comes from the former region, while the latter contributes almost 10%. Sales in China are on the rise, as well. Such advantageous geographic positioning should help keep the bottom line compounding at a double-digit pace for the next five years.

Risks To Consider: Cognex is facing substantial currency headwinds right now. Despite strong Q1 guidance, expectations would be even greater if not for the firm’s high euro and yen exposure. Last year, weakness in these currencies cut growth in factory automation revenue by 4%, management estimates. Also, after a long run-up, Cognex’s stock carries a fairly high forward earnings multiple of around 36.

Action To Take –> Cognex Corp. provides the best entrée into the fast-growing machine vision systems industry. Even at current prices, the stock offers roughly 60% upside over the next four or five years, assuming a constant forward multiple.

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