Coherent (NYSE:COHR) reports its fiscal first-quarter results early next month, and it has already set a high bar. Management told investors to expect revenue between $2.2 billion and $2.4 billion, up from the $2.05 billion it reported last quarter.
But the stock is priced as if that growth might not last. It trades at about 24.7 times estimated fiscal 2027 earnings, which is below its own five-year average. Consensus still calls for strong adjusted earnings growth that year. A faster-growing business at a lower multiple than its history raises the question of whether investors are being too cautious.
Coherent makes the lasers, optical parts, and networking components that move data inside AI data centers and across telecom networks. Its Datacenter & Communications segment, by far its largest, brought in $1.615 billion last quarter, up from $1.018 billion a year earlier. The results lean toward a stock that is cheaper than they justify, with one big condition: its customers have to keep spending.
Data Center Sales Are Driving the Growth
Growth has sped up sharply. Over the past five years, Coherent’s revenue grew about 18% a year, and last quarter it rose 34% from a year earlier, well above that pace. On a pro forma basis, which adjusts for businesses Coherent has sold, the quarter’s growth was 42%.
The product mix is moving the same way. Last month, Coherent launched PhotonLink, a platform that bundles its lasers, detectors, and other optical parts for AI data centers. Yahoo Finance reported that the company counts 20 customer engagements so far, and that Nvidia invested about $4 billion in Coherent and Lumentum earlier this year. For investors looking to add exposure to AI data center optics, our list of 10 Best Fiber Optics Stocks to Buy for the AI Data Center Boom is worth a look.
Profits Are Growing Faster Than Sales
Adjusted operating margin reached 21.8% last quarter, up from 18.0% a year earlier, so each dollar of new sales kept more profit. Adjusted earnings per share rose $0.74 from a year earlier, to $1.74. Investors who want more high-growth stocks can see our ranking of 10 Best Aggressive Growth Stocks to Buy According to Wall Street Analysts.
The adjusted figure runs well above the GAAP one: GAAP earnings per share were $1.19 last quarter, against $1.74 on the adjusted basis. Earnings estimates, and the multiple built on them, use the adjusted number, so the gap matters to anyone paying for the stock.
Customer Spending Is the Main Risk
Most of the growth comes from AI data centers, so a pause in spending by the companies building them would reach Coherent quickly. Management described customer demand in its latest release as exceptional, and its guidance for the coming quarter sits above what it just reported. One reading of the lower multiple is that buyers want a discount for that dependence. The next report will show whether demand is still arriving at that level.
What Investors Are Paying for That Growth
At about 24.7 times estimated earnings for the fiscal year ending next June, Coherent trades above the 21.01 median for its sector. It sits below its own five-year average of 27.46. Against expected adjusted earnings growth of about 68% for the same year, the premium to its sector looks small. If you’re looking for cheaper AI names, check out 10 Undervalued AI Stocks to Buy Now.
The price assumes that growth will slow or that customer spending will stall before those earnings arrive. If you own the stock, you own it at a lower price against earnings than it has usually carried, in exchange for taking on that spending risk.
Are investors being too cautious? Faster sales, wider margins, and a multiple below the stock’s own history suggest they are pricing in more doubt than the numbers show. Next month’s report is the thing to watch: whether revenue lands in the guided range, and whether the data center business keeps growing at last quarter’s pace.
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This article is originally published at Insider Monkey.
