What happened
Coherent (COHR 4.12%) shares underperformed the market this week. Shares of the laser products specialist were down 11% through Thursday trading, according to data provided by S&P Global Market Intelligence. That's as compared to a 0.6% drop in the S&P 500 over that time. The decline didn't interrupt a strong year for shareholders, though, as Coherent's stock is still up nearly 40% so far in 2023.
This week's slump was powered by a downgrade on the stock by a Wall Street firm.
So what
An analyst at the firm Rosenblatt reduced the rating on Coherent's stock to the equivalent of a hold from the prior buy recommendation. The stock's recent rally has gotten ahead of itself, the analyst argued.
Coherent shares have jumped in recent months, partly due to speculation that its products will find strong demand in the fast-growing electronic vehicle production niche. That type of optimism can often drive stock returns unsustainably high.
Still, Rosenblatt's new short-term price target sees further growth ahead for the stock, with shares likely to reach $55 in the next year or so.
Now what
Investors shouldn't read much into short-term sentiment changes like this. Coherent's business trends are the more important metrics to watch, and those haven't been impressive lately. Management said in mid-May that it noticed a sudden order slowdown in Q2 as some large customers decided to delay shipments in the materials division. Coherent has also booked a net loss over the past nine months, adding risk to the stock.
A few significant new manufacturing clients might easily shift the business's fortunes in 2023. Investors will receive more clarity on that point when the company announces fiscal Q4 results in late August. In the meantime, watch for continued volatility in this growth stock.
