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Why Coherent, Inc. Stock Gained 20.6% in August

By Keith Noonan - Updated Sep 11, 2018 at 4:26PM

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Despite big gains in August, the laser technology company's stock is down roughly 37% year to date.

What happened

Coherent, Inc. (COHR) stock jumped 20.6% in August, according to data provided by S&P Global Market Intelligence. The company published third-quarter results at the end of July that came in below the market's expectations, but comments during the company's earnings call appear to have helped the stock regain some ground.

COHR Chart

COHR data by YCharts.

Coherent makes laser technologies that are used in electronics manufacturing, and its products are a component used in the manufacturing of organic light-emitting diode (OLED) displays. The company has previously indicated that weaker demand for OLED screens could negatively impact its results going forward, but it had some reassuring words for shareholders in its recent earnings call.

A laser diode module.

Image source: Coherent. 

So what

Management expects OLED-derived revenue to see a significant decline in 2019, but also that it will rebound in 2020. It also expects that growth from its other segments will bring 2019 revenue within 5% of 2018's sales. This news appears to have been enough to outweigh sales and earnings for the June quarter missing the market's expectations.

The company reported third-quarter results on July 31, with sales and earnings both coming in below the market's expectations. Revenue for the June quarter was up 3.9% to reach $482.3 million, but it fell short of the average analyst sales estimate by roughly $8 million. Earnings per share for the period came in at $3.51, missing the average analyst estimate for earnings per share of $3.54.

Now what

Coherent shares are down roughly 6.5% in September as of this writing; however, there does not appear to be any company-specific news behind the movement.

COHR Chart

COHR data by YCharts.

Shares now trade at roughly 13 times this year's expected earnings, which could still present an attractive entry point for investors willing to endure some near-term headwinds and embrace the somewhat speculative outlook for Coherent in the OLED market. The handset market is still on track to transition to OLEDs, but how long this switch takes to really accelerate and what Coherent's pricing power winds up looking like remain important variables. 

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns shares of Coherent. The Motley Fool has a disclosure policy.

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