IPG Photonics Struggling To Offset Weaker End-Market Demand And Stronger Competition

One of the most perilous times in a company’s publicly-traded life cycle is when it transitions from being a differentiated break-out growth story to a more “regular” type of company with more competition and less capacity for differentiation. Often there are many investors who are unable (or unwilling) to see the change and they’ll respond to any sell-offs or criticism with “just buy it and don’t worry”.

I’ve heard exactly that in response to past articles on IPG Photonics (IPGP) highlighting the increased competition the company is facing and the challenges in finding new markets where the company can really stand out with its technology (and garner premium pricing). And yet, the shares are down about 20% from my last update (where I suggested the valuation was too high), and estimates are quite a bit lower now as well.

I don’t hate IPG, and the valuation is a lot more reasonable now, but those core challenges with rising competition and more difficult differentiation remain in place. While there is still a long runway for laser adoption in a range of markets (including core welding/cutting), more and more of that opportunity is going to go to lower-priced rivals in China. Still, I like the company’s leadership in areas like high peak power lasers and its opportunities in markets like sensors, instrumentation, defense, and medical technology, and I think these shares are worth another look now.

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IPG Photonics Struggling To Offset Weaker End-Market Demand And Stronger Competition