Second quarter earnings at IPG Photonics (IPGP) didn’t bring much happiness to investors, as weaker than expected results and a meaningful downward guidance revision hammered the stock. Still, I think it’s well worth noting that the stock was already weak going into earnings – underperforming the broader industrial sector by about 20% – and I’m starting to wonder if the company/shares have matured to a point where the market treats it like another short-cycle stock to be rotated away from when the manufacturing PMI tops 55.
I remain concerned about the risks to IPG’s business from improving Chinese offerings, but the company also deserves credit for its own internal innovation and its superiority in high-value areas, including pulsed green lasers used to manufacture EV batteries and solar panels. If IPG is still capable of long-term revenue growth in the high single digits and can deliver 20%-plus FCF margins, these shares offer interesting upside at today’s price.
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