What happened
Coherent (COHR 4.12%) shareholders were seeing red on Wednesday. The stock fell 15.3%, compared to a 0.5% decline in the S&P 500. That drop only erased a portion of the stock's positive returns in 2023, though, as shares remain up by more than 30% year to date.
Wednesday's decline was sparked by a negative shift in Wall Street sentiment after an analyst downgraded the stock.
So what
An analyst at Wall Street firm Rosenblatt lowered Coherent's rating from buy to its equivalent of hold before the market opened, with a short-term price target of $55 per share.
The analyst argued that shares have rallied too high on speculation that Coherent might benefit from increasing spending around autonomous driving and the production of electronic vehicles (EV). Coherent produces lasers and optical components used in such precision manufacturing settings.
It's true that Coherent stock has moved higher this year despite some weak operating trends. Organic revenue rose by just 4% in its fiscal 2023 third quarter (which ended March 31), after all. When management delivered its results for that period in mid-May, it said that the company had seen a "sudden and unexpected" demand slowdown. That will likely pressure its fiscal 2023 sales.
Now what
Given that weakening outlook, it does make sense that investors' sentiment would worsen for Coherent's business over the short term. On the bright side, its sales could jump if the company wins just a few large contracts in high-growth niches like EV production.
But growth trends are decelerating, and the company has posted only modest operating income over the past nine months. Until shareholders see concrete improvements in its core metrics, the stock will be susceptible to further slumps.
