Shares of laser-based technologist Coherent (COHR) are up 12% since I last wrote about the company in the fall of 2018, but the trip to this point has been a harrowing one. Dragged down by effects from the trade war between the U.S. and China and a slowing global economy, falling demand for lasers sent the stock tumbling during the fourth quarter.

Since then, Coherent has been on the rebound, as the company is cautiously optimistic headed into 2019. With a cheap stock and business beginning to stabilize, this optics specialist is worth a look.

A decent 2018, an ugly start to 2019

The 2018 fiscal year was a pretty good one for Coherent. Total sales were up 10% over 2017 to $1.90 billion, and adjusted earnings per share increased 9% to $13.64. In spite of the good results, shares tanked over 60% due to the aforementioned global trade and economic slowdown issues -- especially from Chinese manufacturing customers.

That trouble started to show up in Coherent's fourth quarter when sales and adjusted earnings tumbled 6% and 13%, respectively. That trend continued to kick off the new 2019 fiscal year.


Three Months Ended December 29, 2018

Three Months Ended December 30, 2017

YOY Increase (Decrease)


$383.1 million

$477.6 million


Gross profit margin



(6.4 p.p.)

Operating expenses

$96.5 million

$107.7 million


Adjusted earnings per share




YOY= year-over-year. P.p. = percentage point. Data source: Coherent.

The headline numbers don't look great, but business was actually a mixed bag of negative and positive developments. While Chinese manufacturing is hitting the brakes, elsewhere in the world semiconductor and display panel manufacturing is picking up steam. The automotive, medical device, and aerospace and defense industries were also bright spots. CEO John Ambroseo had this to say:

We remain very optimistic about the long-term opportunities for the industry and for Coherent, but uncertainty in China is clouding our near-term visibility. A tariff deal or local stimulus would provide welcome relief, but it is difficult to predict if or when either might occur.

Thus, Coherent is adjusting its investments accordingly to compensate for the uncertainty across the Pacific. For the second quarter, revenue is expected to be $360 to $380 million, down sharply from the $481 million a year ago, but a slower slide than just posted in the first quarter.

Check out the latest earnings call transcript for Coherent.

A man holding his face in his hands in front of a chart of a falling stock.

Image source: Getty Images.

But what about the stock?

There has been optimism that a trade deal between Washington D.C. and Beijing is just around the corner, which could bring relief to manufacturers and reinvigorate demand for Coherent's laser technology. That explains the recent rally in the stock, which has posted a 28% rebound since the start of 2019.

It may not be too late to get on board. Semiconductor and display panel manufacturers have been forecasting a rebound later in the year, which should help offset some of Coherent's losses elsewhere. Either way, after such a big tumble in 2018, shares look like a pretty good value at this point. Trailing 12-month price to earnings is a mere 13.9, and forward price to earnings based on analyst expectations is 17.9.

That does imply there will be more losses in the bottom line in the year ahead, but Coherent has a lot of levers to pull to get the business stabilized. Assuming investors can stomach some wild ups and downs, now looks like a decent time to pick up some shares for the long haul.