II-VI Stock: The Material Specialist Gaining from Strong Demand

II-VI Incorporated
Credit:iStock.com/Doucefleur

II-VI Stock to Continue Rising from Strong Tailwinds

Today’s stock is a good example of our preferred strategy of investing in growth stocks: venture capital investing. By investing in venture capital stocks, investors gain from the exposure to cutting-edge technology and products that are supplied to a number of industries for a number applications. Such companies enjoy leading positions in their markets and, combined with their innovative capabilities, stand to reap above-average returns for their investors.

One such case is II-VI, Inc. (NASDAQ:IIVI), a worldwide leader in engineered materials and optoelectronic devices. II-VI develops innovative products for diversified applications in the industrial, optical communications, semiconductor equipment, consumer markets, military, and life science sectors. The company has three business segments: laser solutions, photonics, and performance products.

As the world’s demand for greater bandwidth keeps on accelerating, II-VI’s products help the next generation of high-speed networks and datacentre solutions meet this demand. Its products are at the core of both terrestrial and undersea optical networks, helping boost optical signal power in fiber optic cables over longer distances. As this market grows, so will IIVI stock.

II-VI’s industrial laser optics and solutions for the materials processing market remain in strong demand. Over the past several years, fiber laser-based systems have changed the way most materials are processed. Another emerging and fast-growing application is the processing of displays for consumer electronics, which include those based on OLED technology. The company has a broad portfolio of products that serve all these growing laser markets.

II-VI’s leadership in its product categories and impressive growth have been boosting IIVI stock, which is hovering near record highs at present. Just to take an example of the potential growth of its products in the market for intelligent networks, fiber optics, and wireless communications, research by MarketsandMarkets Research Private Ltd. shows that the global fiber optics market is likely to reach $5.0 billion by 2021, representing a compound annual growth rate (CAGR) of almost 10% from 2016 to 2021. (Source: “Fiber Optics Market – Global Forecast to 2021,” MarketsandMarkets, April 2017.)

The growth is being further driven by data centers and demand from China, where the company’s ground presence bodes well. II-VI is well-positioned to gain from these technology trends in the coming years.

The company just released its fiscal year 2018 Q1 results and reported an increase of 18% in revenue that touched $262.0 million. Adjusted earnings per share increased by 35% to $0.35. All the business segments of the company—laser solutions, photonics, and performance products—got off to a great start in the first quarter. (Source: “Q1 2018 II-VI Inc Earnings Call,” II-VI, October 31, 2017.)

The company expects to see broad-based growth in the fiscal year 2018, driven by its core market as well as emerging markets, which include 3D sensing and the rapidly developing electric vehicle ecosystem.

The improving results and the potential growth in the end markets has been pushing IIVI stock higher and higher. IIVI stock has posted more than 200% returns over the past five years and almost 60% in the last one year. The following stock chart displays this impressive growth.

IIVI stock chart

Chart courtesy of StockCharts.com

Given the continued leadership and strength in its product portfolio, II-VI shall post further gains in the future, with IIVI stock delivering more triple-digit returns in the coming years.

Analyst Take: 

Given the increasing applications of laser technology in high growth end markets, IIVI stock has a lot of room to grow in the future. The company has a leading market position in diverse end markets, with vertically integrated and scalable manufacturing. It has been growing its revenues and margins consistently. Through a number of significant acquisitions, it has maintained its position in the cutting-edge laser technology space. Even in photonics, its products serve a vast range of applications in the wireless communications and fiber optics space.

With a large number of areas of applications such as displays, communication technology, and medical sciences, there is a lot of room for IIVI stock to grow. This is a venture capital stock that is geared for the future. As the stock is trading near its record highs, investors could consider building a position on dips.