Please ensure Javascript is enabled for purposes of website accessibility

Why IPG Photonics Sees Even Better Times Ahead

By Dan Caplinger - May 2, 2018 at 8:29AM

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

A strong earnings report could be just the beginning.

IPG Photonics (IPGP 0.31%) is far from a household name, but the company is well-placed to take advantage of one of the most important sources of innovation in the industrial world. With its lasers and related systems, IPG Photonics has been on a fast growth trajectory for years, with manufacturers and other companies looking to it to provide lasers that can help them be more efficient and productive in their operations.

Coming into Tuesday's first-quarter financial report, IPG Photonics investors were excited about the possibility that the company could beat what had been disappointingly downbeat guidance in its previous report. IPG did a good job of producing growth in sales and earnings that was more consistent with what investors have gotten used to seeing, and that points to the potential for even further gains in the remainder of the year and beyond.

Laser beam pointing from a ceiling-mounted device, with focal point labeled.

Image source: IPG Photonics.

IPG hits the mark

IPG Photonics' first-quarter results showed that fears about a slowdown are thus far unfounded. Revenue jumped 26% to $359.9 million, easily outpacing the 21% growth rate that most of those following the stock had expected to see. Net income grew at an even faster rate, climbing 42% to $106.3 million, and the resulting earnings of $1.93 per share were higher than the consensus forecast among investors for $1.79 per share on the bottom line.

As we've seen in recent quarters, IPG got most of its growth from its core materials processing unit. Sales for that segment were higher by 28%, compared to a 5% drop for the much smaller other-market category.

Among IPG's various product lines, high-power continuous wave lasers were especially noteworthy, seeing sales climb 37% compared to the year-ago period and making up almost two-thirds of the company's overall revenue. Pulsed lasers and medium- and lower-power lasers also had good gains, with only the quasi-continuous wave category seeing sales declines.

Geographically, IPG did best internationally. Sales to China saw the biggest absolute growth, and Germany, Eastern Europe, and Japan also had noteworthy increases of more than 20%. The North American market, by contrast, saw sales climb just 3%.

IPG did an even better job containing its costs. Operating expenses rose just 12%, helping to boost profit margin levels and produce greater bottom-line growth.

Can IPG Photonics keep shooting higher?

CEO Dr. Valentin Gapontsev pointed to the company's success. "During the first quarter of 2018," Gapontsev said, "we achieved the highest level of quarterly bookings in the company's history." The CEO noted that bookings were high enough to exceed the amount of work billed, boding well for its future business and suggesting that forward momentum will continue to build.

IPG didn't update its full-year guidance for 2018, but it did give more upbeat projections for the second quarter than investors had expected. The laser maker said it expects sales of $400 million to $430 million during the quarter, translating to top-line growth of about 8% to 15%. Earnings of $2.05 to $2.35 per share could be up as much as 23% year over year. The midpoints of both ranges were above what most of those following the stock were expecting to see from IPG's guidance. Moreover, although the calls would suggest a slower rate of growth for the business, it's nevertheless consistent with a more favorable assessment of the company's prospects than IPG itself had suggested just a few months ago.

IPG Photonics shareholders were ecstatic about the strong growth and optimistic assessments for the future, and the stock soared 20% on Tuesday following the announcement. Now that it appears possible that IPG could sustain its sales and profit gains well into the future, investors seem more comfortable in agreeing that it's still a solid pick via which to take advantage of industrial innovation.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends IPG Photonics. The Motley Fool has a disclosure policy.

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

IPG Photonics Corporation Stock Quote
IPG Photonics Corporation
IPGP
$102.16 (0.31%) $0.32

*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
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

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.