What happened

Shares of IPG Photonics (NASDAQ:IPGP) dropped 15.1% in July, according to data from S&P Global Market Intelligence, amid escalating trade tensions and after the fiber laser leader's second-quarter earnings fell short of expectations.

That's not to say it was all bad news; IPG's quarterly sales fell 12% year over year to $363.8 million, slightly above expectations for a more severe 15% drop. But that also translated to a more than 40% decline in net income to $72.3 million, or $1.34 per share, falling short of estimates for earnings closer to $1.38 per share.

Stock market chart and data indicating losses.


So what

To be fair, not all of IPG's decline came after its actual quarterly update (which hit the wires on July 30, 2019); after drifting lower throughout the month, shares technically only fell around 4% on the final trading day of July.

Rather, the underlying drivers of IPG's top-line weakness are paramount to understanding the stock's downward momentum. Recall, for example, shares also slumped nearly 30% in May after the company blamed weak demand in China and Europe for disappointing first-quarter 2019 results, then followed by indicating improving conditions in China would be instrumental in driving better performance going forward.

Alas, the situation hasn't changed much since then.

"Escalation of the U.S.-China trade conflict and further macro softness have reversed the market recovery that we had expected to strengthen in the second half of 2019," lamented IPG CEO Valentin Gapontsev in their second-quarter report. Dr. Gapontsev also noted their largest machine tool OEM customers won't provide "expectations beyond the next few months given the weaker macroeconomic and geopolitical climate."

Now what

Still, Gapontsev added that advancements in IPG's core laser portfolio and the strength of new products leave it well positioned to benefit from "the eventual rebound in end market demand."

Until investors see more tangible evidence of such a rebound, however, I suspect IPG Photonics stock will remain under pressure.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.