KIEV, UKRAINE – 2018/10/25: In this photo illustration, the IPG Photonics company logo seen … [+]
Up more than 2x from its low in March 2020, at the current price of $206 per share, we believe IPG Photonics stock (NASDAQ: IPGP) has further upside potential. IPG Photonics, a manufacturer of optical fiber lasers, has seen its stock rise from $102 to $206 off its March 2020 low, more than the S&P which increased by over 80% from its lows. Further, the stock is up almost 1.5x from the level it was at before the pandemic. However, we believe that IPG Photonics stock could rise around 25% to regain its early-2021 high of $260, driven by expectations of continuing demand growth and strong Q1 2021 results. Our dashboard What Factors Drove 82% Change In IPG Photonics Stock Between 2018 And Now? has the underlying numbers behind our thinking.
Stock Prices
IPGP stock’s rise since late 2018 came despite an 18% drop in revenues from $1.46 billion in FY 2018 to $1.2 billion in FY 2020. Net margins dropped from 27.7% to 13.3% over this period, amidst high impairment charges in FY 2019 and FY 2020. Combined with a roughly unchanged outstanding share count, EPS dropped 60% from $7.55 to $3.00 over this period.
However, IPG Photonics’ P/E (price-to-earnings) multiple rose from 15x in 2018 to 75x by 2020 end, but has since dropped to 69x. We believe that the company’s P/E ratio has the potential to rise further in the near term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.
Where Is The Stock Headed?
The global spread of Coronavirus and the resulting lockdowns hampered semiconductor demand across a variety of industries. However, demand has since recovered and this has clearly benefited demand for IPG’s optical fibers. This is evident from the company’s Q1 2021 earnings, where revenue came in higher at $346 million from $249 million for the same period last year. Operating expenses did not rise at the same level and this saw operating income doubling from $45 million to $89 million. Combined with a roughly unchanged effective tax rate, EPS surged to $1.27 from $0.69 over this period.
Additionally, with the lockdowns being lifted and the continued growth in demand for optical fibers across a variety of applications, we believe the company’s revenues stand to benefit further in the medium term. Additionally, if the company is able to continue controlling expenses going forward, a rise in investor expectations could drive up the company’s P/E multiple. We believe that IPG Photonics stock can rise 25% from current levels, to regain its recent high of around $260.
While IPG Photonics stock may move higher, it is helpful to know how its peers stack up. IPG Photonics Stock Comparison With Peers summarizes how IPG Photonics compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.
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