Whenever I see a stock that looks cheap, the first question I ask is why. For small-cap industrial-laser manufacturer and Motley Fool Hidden Gems recommendation Rofin-Sinar (NASDAQ:RSTI), the present valuation would seem to be a product of pretty modest expectations for future growth.

Second-quarter results may not have been the stuff blockbusters are made of, but it was a good quarter nonetheless. Revenue climbed about 9% for the quarter, with foreign exchange contributing about one-quarter of that growth. As management indicated previously, macro application sales were light (up 2%), while micro application sales were stronger (up 16%).

Margins were also healthy for the period. Gross margin ticked up slightly and operating margin improved by nearly a full point. As a result of these margin improvements, the company managed a 14% improvement in net income.

Both accounts receivable and inventory also improved. Rofin-Sinar ended the quarter with about $111 million in cash on the balance sheet and about $41 million in combined short- and long-term debt. Despite this strong cash balance, shareholders shouldn't expect to be seeing much of it hit their pockets any time soon. The company does not pay a dividend and seems to have no plans for a share buyback. Instead, management confirmed that it is looking for additional acquisitions and would prefer to spend that cash to grow the business.

Part of the reason I think this stock trades at such a reasonable price -- a little less than 14 times trailing earnings -- is that the markets it serves are both cyclical and generally mature. Machine tools and automobiles are highly cyclical, generally mature industries, and while I wouldn't categorize semiconductor manufacturing as mature, it too is highly cyclical. As a result, analysts and professional investors don't seem to expect especially strong EPS growth over the next few years.

What's more, historical EPS growth here has been roughly at a low mid-teens rate and I don't see anything so fundamentally new about the business today to suggest that will change. That said, the growth rate of owner earnings (also called structural free cash flow) has been more robust -- on the order of 20%. That would suggest to this Fool that current prices probably are something of a bargain relative to the sort of growth this company should be able to produce.

Trading at a valuation that is relatively appealing in comparison to other companies like Coherent (NASDAQ:COHR), Excel (NASDAQ:XLTC), and II-VI (NASDAQ:IIVI), plus offering a solid history of performance and good internal rates of return, Rofin-Sinar looks like a worthwhile idea for investors searching for growth/value hybrids.

For more light takes on lasers and related companies:

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).