Please ensure Javascript is enabled for purposes of website accessibility

Why Coherent Stock Crashed Today

By Rich Smith - Updated Feb 8, 2018 at 1:08PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

An earnings beat failed to allay concerns about falling margins ahead.

What happened

Shares of Coherent, Inc. (COHR 0.11%) are getting zapped today, down 17.1% as of 12 p.m. EST, after the laser maker announced strong earnings coupled with a disappointing outlook.

Coherent reported its financial results for fiscal Q1 2018 last night, slightly edging out analyst predictions of $3.52 per share in pro forma profit by earning $3.54 instead, and beating on revenue as well.

Red laser beam

Investors took aim at Coherent's margins warning on Thursday. Image source: Getty Images.

Sales of $477.6 million rose 38% in comparison to last year's Q1, and pro forma profits spiked 38% higher. GAAP profits were also up 36% to $1.67 per diluted share despite being hit hard by one-time charges that included effects from the recently passed Tax Cuts and Jobs Act.

So what

Instead of being wowed by those results, however, it appears that investors are fleeing Coherent stock based on what an analyst called "a lower-than-expected guide for fiscal Q2 margins, due to the negative impact from the stronger euro." Coherent didn't provide guidance on what exactly it expects to earn this quarter (or this year). But just the hint of margin weakness appears to have spooked investors.

This is despite the fact that management confirmed it sees no signs of either "customers seeking to delay or cancel deliveries" of its products, or of revenue otherwise being vulnerable to falling short of management's "expectations" -- whatever those may be.

Now what

Management's calming words notwithstanding, investors are fleeing Coherent stock in droves. Is that the right call?

At $6.2 billion in market capitalization prior to earnings, and with minimal net debt on its books, and $219 million in trailing earnings and $294 million in trailing free cash flow, I calculate Coherent's price-to-earnings ratio at approximately 28 -- and its P/FCF ratio at only 21. Those valuations may have looked a bit rich given that analysts were predicting a 17.5% long-term growth rate for Coherent heading into earnings.

With Coherent's market cap falling to less than $5.3 billion post earnings, however, the stock now looks fairly priced to me. If it falls any further, I think I'd be a buyer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Coherent, Inc. Stock Quote
Coherent, Inc.
COHR
$267.86 (0.11%) $0.30

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.