IPG Photonics Stock Down 61%; Time to Consider This Fiber Laser Stock?

Why IPGP Stock Is Attractive

As I write this, the S&P 500 has fallen to a year-to-date low and the Nasdaq is creeping close to its June 16 low. Investor sentiment is extremely bearish, and it’s clear that the bear market remains in place. But often when market sentiment is bearish, there are aggressive opportunities with stocks that are trading at sharp discounts.

That’s the situation with IPG Photonics Corporation (NASDAQ:IPGP), down by 51% in 2022 and down by 61% from $220.00 in August 2021. While there’s likely to be further price weakness, investors with risk capital could accumulate shares of IPG Photonics stock and wait it out.

IPG Photonics Corporation, established more than 30 years ago during the technology boom in the 1990s, develops fiber laser technology. Its applications are used in situations where precision is required. I’m talking about sectors such as defense, entertainment, industry, instrumentation, medicine, science, and semiconductors.

The company sells products to thousands of customers worldwide, including original equipment manufacturers (OEMs), system integrators, and end users. (Source: “Investor FAQ,” IPG Photonics Corporation, last accessed October 6, 2022.)

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IPG Photonics Corporation Requires Financial Consistency

The challenge for IPG Photonics will be its ability to deliver consistent financial growth, which so far has eluded the company. If the company can achieve this, I expect IPGP stock to provide high returns.

IPG Photonics Corporation’s five-year revenue picture shows inconsistency, but the 21.7% growth in 2021 to above its 2019 pre-pandemic level is encouraging.

Analysts estimate that the company will report a lower revenue growth rate of 2.2% to $1.5 billion for full-year 2022, followed by 5.9% growth to $1.6 billion in 2023. (Source: “IPG Photonics Corporation (IPGP),” Yahoo! Finance, last accessed October 6, 2022.)

Fiscal YearRevenues (Billions)Growth
2017$1.4N/A
2018$1.53.6%
2019$1.3-10.0%
2020$1.2-8.7%
2021$1.521.7%

(Source: “IPG Photonics Corp.” MarketWatch, last accessed October 6, 2022.)

IPG Photonics has delivered five consecutive years of positive earnings before interest, taxes, depreciation, and amortization (EBITDA); generally accepted accounting principles (GAAP) earnings per share (EPS); and positive free cash flow (FCF).

Although the company’s financial performance in the last five years has been largely inconsistent, IPG Photonics Corporation managed to achieve growth in all three metrics in 2021.

Fiscal YearEBITDA (Millions)GAAP Diluted EPSFCF (Millions)
2017$630.3$6.30$278.9
2018$597.5$7.38$232.9
2019$387.1$3.35$190.0
2020$326.1$2.97$197.6
2021$447.4$5.16$266.6

(Source: Ibid.)

I have some concerns ahead, given the rising interest rate environment and the possibility of a recession.

Analysts estimate that IPG Photonics Corporation will report lower profits of $4.77 per diluted share for full-year 2022 but come back with $5.45 per diluted share in 2023. (Source: Yahoo! Finance, op. cit.)

A major plus for IPG Photonics stock investors is the company’s solid balance sheet, with $1.2 billion ($24.59 per share) in cash and a manageable $38.6 million in debt. This means higher interest rates won’t have a major negative impact on the company.

Analyst Take

IPG Photonics Corporation has some work ahead to deliver financial consistency, but if it’s successful, IPGP stock could go much higher.

IPG Photonics stock’s price deterioration provides an opportunity to contrarian investors.

Note that company insiders, who control 36.6% of IPG Photonics Corporation’s outstanding shares, have been buying. The high insider stake means management’s desire to succeed is significant, since they’re investing their own money in the company.