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Why IPG Photonics Jumped Nearly 9% Today

By James Brumley – Nov 2, 2021 at 3:49PM

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The industrial technology company's top- and bottom-line growth looks unstoppable.

What happened

Shares of laser technology outfit IPG Photonics (IPGP -1.39%) rallied 8.9% on Tuesday in response to a healthy third-quarter report and equally healthy guidance for Q4.

So what

For the third quarter, IPG Photonics turned $379.2 million worth of revenue into a profit of $1.40 per share. Sales were up 19% year over year, and earnings more than doubled from their year-ago result of $0.66 per share. Analysts had only been modeling for a bottom line of $1.27 per share, and a top line of $368.3 million.

Rising bar chart with an arrowed trend line.

Image source: Getty Images.

Look for more of the same sort of strength and success three months from now, too. Management anticipates fourth-quarter sales of between $330 million and $360 million, and earnings of between $1.00 and 1.30 per share. Analysts' consensus estimates for Q4 are for revenue of $366.5 million and earnings of $1.30 per share. In the fourth quarter of last year, IPG Photonics earned $0.92 per share on revenue of $336.6 million.

It's arguable the company's guidance may be deliberately conservative.

Now what

IPG Photonics' business remains solid -- of that there can be no doubt. But, one-day rallies of this magnitude don't often see great follow-through.

This one may be an exception, however.

While the tech company has certainly done all it's supposed to do, the market has been tough on the stock since it peaked in January. After rallying by 167% from its March 2020 low to that high point, shares fell by 40% to a recent low in early October -- probably on valuation concerns. Even after Tuesday's big gain, the stock remains much closer to that low than January's high, yet it's also still valued richly at nearly 29 times next year's projected earnings.

On balance though, the stock's above-average valuation shouldn't be much of a deterrent to newcomers as this year's pullback makes for a compelling bullish argument. Now that traders have tipped their hand, so to speak, there's good reason to expect this young recovery rally to keep going at least for a while longer.

Whatever the case, the company's fiscal Q3 performance was everything it was supposed to be.

James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends IPG Photonics. The Motley Fool has a disclosure policy.

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