What happened

Shares of IPG Photonics (IPGP -0.47%) fell by as much as 10.5% on Tuesday, following a second-quarter earnings report that beat Wall Street's estimates but failed to support the stock's impressive gains in recent months. Shares closed the trading day down by 6.9%.

So what

Revenues for the maker of fiber lasers and laser systems fell 19% year over year to $296 million in Q2, while its earnings fell 47% to $0.71 per diluted share. As painful as these drops were, Wall Street had expected even steeper declines. The average analyst would have settled for earnings near $0.60 per share and a top line in the neighborhood of $280 million. But the company also issued mixed third-quarter guidance, with earnings targets just above the current consensus among analysts and a revenue forecast 3% below it.

Photo of an industrial  fiber laser cutting through a sheet of plate steel.

Image source: Getty Images.

Now what

Following the onset of the COVID-19 pandemic, IPG enjoyed a surprisingly rapid return to normal business in certain regions, led by industrial laser orders from China. Orders are still coming in from North America and Western Europe at slower-than-normal paces, clouding the near-term picture for the company. Management remains excited about long-term drivers of demand growth such as electric vehicle battery processing, medical laser systems, and ultra-fast fiber-optic networking components.

Investors took a hard look at IPG's modest third-quarter sales guidance Tuesday and decided that the stock was a bit too pricey. However, even with this pullback, it is still up 15.6% year to date and is trading about 8.5% below last week's 2020 peak.