IPG Photonics Corporation (IPGP), II-VI, Inc. (IIVI): An Industrial Play That Will Continue to Rule the Laser Industry

As of now, IPG Photonics Corporation (NASDAQ:IPGP) enjoys an ROE of 20.99% while II-VI, Inc. (NASDAQ:IIVI) and Coherent have an ROE of 8.19% and 8.9%, respectively. ROEs display the depth and competence of management which in turn decides the fate of a rapidly growing company.

But even with a relatively lower ROE, Coherent has been able to grow at a rapid rate. Its five-year average EPS growth averages around 39% as compared to II-VI’s 8.1% and IPG Photonics’ 34%. This is partly because of its relatively smaller size, but mainly due to its acquisition spree.

In November last year, Coherent acquired Innolight Innovative Laser and Systemtechnik GmbH and Midaz Lasers Ltd. And in December, the company acquired Lumera Lasers. Coherent has been growing inorganically, but is low ROEs suggest that the company is yet to combine the synergies of its acquisitions.

However, for the next five years, analysts estimate the annual EPS growth of Coherent to average around 12.5%, 13% for II-VI, Inc. (NASDAQ:IIVI) and 26% for IPG Photonics. These growth estimates leave little reason to look beyond IPG Photonics in the industry of lasers.

Final words

Besides that, IPG Photonics has also earned a reputation of delivering large product shipments in a timely and scheduled manner. This is because IPG Photonics has relatively larger production facilities due to which it can manufacture industrial lasers in large numbers. Since most of its peers have limited production facilities, they aren’t able to deliver large shipments as quickly as IPG Photonics. This type of timely and scheduled delivery discipline has taken IPG Photonics way ahead of its peers.

Shares of IPG Photonics Corporation (NASDAQ:IPGP) have risen around 27% over the last year, but have slid by nearly 16% this year. In my opinion, this presents a good buying opportunity considering the fact that major investment research firms, have an outperform rating on IPG Photonics with price targets ranging from $68-$74.

Piyush Arora has no position in any stocks mentioned. The Motley Fool recommends II-VI and IPG Photonics. The Motley Fool owns shares of IPG Photonics.

The article An Industrial Play That Will Continue to Rule the Laser Industry originally appeared on Fool.com.

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