IPG Photonics Already Seeing A Strong Recovery

Buying good companies when they are beaten up a bit by disappointed growth-oriented investors continues to be a sound strategy, provided that the underlying market drivers are only going through a temporary patch of trouble. So it has been with IPG Photonics (NASDAQ:IPGP). I thought the slowdown in the metalworking markets, and the pressure it was creating on IPG's valuation, were an opportunity back in the summer of 2016, and the shares have moved up about 60% since then. To be fair, investors would have done even better in rival laser company Coherent (NASDAQ:COHR), or turnaround metalworking play Kennametal (NYSE:KMT), but IPG's performance stacks up pretty well with other metalworking stories like Lincoln Electric (NASDAQ:LECO) and Colfax (NYSE:CFX).

IPG Photonics continues to do a commendable job of moving the goal posts out in terms of what can be accomplished with its high-power lasers. That is creating new opportunities to take share away from non-laser systems as well as to replace old non-fiber laser installations. Looking ahead, there are still attractive opportunities in areas like cutting and welding, as well as drilling, not to mention newer applications like theater projection, OLED production, and 3D manufacturing. IPG also continues to move forward with new(er) technologies like UV and ultrafast lasers that can still add more hundreds of millions of dollars to the long-term addressable market.

With a strong recovery in revenue and strong recent growth in machine tool orders in China, I'm not surprised that investors have come back to this name. I still believe in the prospects for high-single-digit revenue growth and mid-teens FCF growth, but the high-single-digit implied total return isn't as compelling relative to the prospects a year ago.

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IPG Photonics Already Seeing A Strong Recovery