Seeking Alpha: Rofin-Sinar Looking To A Cyclical Recovery And Fiber Share Gains

About a month and a half ago, I wrote that IPG Photonics (IPGP) was a good name to know in lasers for its growth potential tied to the expansion of the fiber laser market (where it has at least two-thirds market share). Circling back, it's also worth exploring the potential of the 800lb gorilla in the overall industrial laser space - Rofin-Sinar Technologies (RSTI).

Rofin-Sinar is the leading company in market share terms in a market that I'd characterize as "cyclical growth" - there are certainly ups and downs from year to year, but the overall laser market continues to outgrow overall industrial spending on a multi-year basis. With a strong IP position and industry reputation, not to mention a wide array of products, Rofin-Sinar can benefit from the ongoing expansion of industrial automation and the continuing penetration of lasers into new cutting, welding, and marking applications.

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Rofin-Sinar Looking To A Cyclical Recovery And Fiber Share Gains

Seeking Alpha: IPG Photonics Looking To Innovation And Integration

It's still pretty tough out there if you're in the laser business. While Newport (NEWP) and II-VI (IIVI) have come alive in the last three months and Coherent (COHR) and Rofin-Sinar (RSTI) are both in the green for the full year, only Newport has kept pace with the S&P 500. Even so, IPG Photonics (IPGP) has done even worse, as wobbly quarterly performance and weak end markets like industrial welding and automotive have discouraged investors in this volatile laser company.

Still, I think there are better days ahead for this leading fiber laser company. Fiber lasers continue to gain share in the growing laser market, and the number of applications for fiber lasers has only been increasing. Not only does IPG Photonics enjoy a strong IP position and a good reputation for innovation, but the company's vertical integration allows it to produce lasers at considerably lower costs than its rivals - leaving the company free to compete on features when it can, and price when it must.

On a cash flow basis, I believe these shares are about 25% undervalued today, and I do expect rather aggressive adoption and growth for the company over the next five and ten years. EV/EBITDA also supports the notion that these shares are undervalued, and though global industrial capex spending remains a major unknown, I believe the success of IPG Photonics is more weighted toward "when" than "if".

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IPG Photonics Looking To Innovation And Integration

Investopedia: Rofin-Sinar Down On Power

Rofin-Sinar Technologies (Nasdaq:RSTI) has often been a quality small cap company that, despite a lack of institutional support (big-name sell side coverage), has often traded at pretty robust premiums. With key industrial markets in Germany and China struggling, though, these shares have had a rough go of it and have come down in value substantially. While investors should not ignore the downside of further global economic stagnation, now may be a good time to get up to speed on a stock that should be highly leveraged to a recovery in those markets.

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http://stocks.investopedia.com/stock-analysis/2012/Rofin-Sinar-Down-On-Power-RSTI-IPGP-COHR-NEWP0508.aspx