IPG Photonics Stock Forecast

IPG Photonics Stock Forecast: If you’ve ever seen a sci-fi movie, you know one thing to be true – lasers are the future. Lasers are increasingly being used for additive and subtractive manufacturing, communications, medical purposes, and even as weaponry.

The fiber laser market is expected to grow from $1.782 billion in 2017 to $4.403 billion by 2025. Leading this charge is Valentin Gapontsev, CEO and Chairman of IPG Photonics (IPGP).

This global enterprise technology company developed the fiber laser market (along with the underlying photonic technology), and it has manufacturing facilities in the United States, European Union, and Russia.

It since expanded to development and manufacturing of complementary products, such as fiber amplifiers, optical delivery cables, and fiber couplers. With the market full of uncertainty, is this stock a worthwhile investment?

We examine IPG Photonics as a business and explain the current and future applications of its products. This will help understand its market value and stock price, along with future prospects.

What Does IPG Photonics Do?

Gapontsev, a physicist, founded IPG Photonics in his native Russia in 1990. He and a partner created a unique architecture for fiber lasers which uses an optical laser doped in rare elements, like dysprosium, erbium, holmium, neodymium, praseodymium, thulium, and ytterbium.

Lasers have long been used for a variety of purposes, including telecommunication, and the company adapted industrial lasers to provide cutting and welding utility. It wasn’t long before the Pentagon gained interest in maximizing the power to create high-intensity laser weaponry that’s being adapted for military usage. In fact, defense contractors around the world are working to adapt fiber lasers to 100-kilowatt levels that can effectively decimate targets kilometers away.

In fact, IPG industrial lasers are equipped on the USS Ponce, and Lockheed Martin has been researching a large range of uses. Imagine the extraterrestrial lasers that destroy human points of interest, like the White House, in the movie Independence Day. Of course, it’s not all weapons – fiber lasers (along with diode lasers, which the company also makes) are useful for communications and power/data transfer too.

Surgeries, including LASIK and skin resurfacing, replace scalpels with lasers for a cleaner, more precise cut. On the industrial side, these lasers have become prolific over the past 20 years. But does that mean IPG is the company to do it?

Is IPG Photonics Stock A Buy?

Although a great company, what really matters as an investor is how the stock is doing. IPG opened 2020 with an upgrade to a buy average across financial market analysts, including Citigroup, TheStreet, Northcoast Research, and Piper Jaffray Companies.

The recession of 2020 is putting a lot of companies to the test, but IPG is well-placed because of its revenue streams in government, healthcare, and industrial applications.

Demand across the board for fiber lasers makes this a healthy market. Manufacturing and telecommunications are especially interested in upgrading to more high-powered laser applications.

That said, the entire global economy’s March 2020 freefall makes any investment risky. Although IPG Photonics started the fiber laser market and is currently the biggest player, it faces stiff competition. Drumpf(SPI), Mitsubishi, GSI, and Coherent, Inc are among its market competitors.

Still, an overall “buy” rating across the board from investment analysts means IPG is well positioned and expected to continue driving revenues, despite the economic slowdown.

What Are the Risks of Buying IPG Photonics?

Despite its rating, IPGP had a rough 2019. The company faced (and still does) an escalating trade war between the U.S. and China. This took a large bite out of the stock’s value even before the Covid-19 coronavirus shut down China’s manufacturing, followed by the U.S. and others. From 2018-2020, the company’s share prices were cut nearly in half, leaving investors feeling the pressure.

Revenues are down 7% year over year, with operating expenses soaring 75%, according to the company’s 2019 Q4 report.

In addition, foreign currency exchange rates and other economic issues battered the company’s market value and earnings.

Still, analysts’ consensus estimates looked for a $287 million revenue year in 2019, while the company surpassed them, delivering $306.6 million. This also surpassed management expectations.

On top of this, materials processing (which represents the vast majority of the company’s sales at 90%) were down 11% entering 2020.

China saw the biggest decline in sales, and with that country’s massive manufacturing, telecommunications, and medical footprint, IPGP needs to boost these sales.

That won’t be easy while the world is still reeling from the effects of the Covid-19 coronavirus. The pandemic started in Wuhan, China before spreading across the country and the world. U.S. markets are in a freefall as mass panic buying hit the country, forcing the U.S. and several individual states to declare a state of emergency. This novel coronavirus will continue weakening the economy for the rest of the year.

IPG Photonics Stock Forecast Summary

IPG Photonics is a fiber laser manufacturer that services various commercial and industrial purposes. From advanced weaponry to surgery, telecommunications, and cutting/welding, these lasers are here becoming more prolific over the next decade.

Still, the company is struggling in China and facing competition in the niche it created. A U.S.-China trade war and the spread of the novel coronavirus acted as a one-two punch to devastate investors and create uncertainty about the company’s future.

With all this true, the consensus among analysts is that IPG Photonics (IPGP) stock is a buy. It’s an industry leader in a market it created and can continue to innovate. The future is lasers, and this company is deeply vested in that future.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.