Fiber laser leader IPG Photonics (NASDAQ:IPGP) has quite a track record - not many companies manage a decade-plus of double-digit revenue growth, nor consistent mid-teens-or-better FCF margins, to say nothing of strong returns on capital and assets during more normal business conditions. On top of that, internal diode development and sourcing capability has long been a key competitive advantage for the company, allowing it to set the pace for innovation while maintaining very good margins.
In the near term, it gets better. IPG's revenue has long been driven by industrial capex cycles, and I believe we're in the early stages of a strong capex upswing - one that could be extended further if there is meaningful reshoring (or even just near-shoring) of manufacturing capacity. Opportunities in EVs, solar, and additive manufacturing only add to the longer-term potential.
The "but" is valuation. I don't believe IPG Photonics should trade like an industrial growth stock (where valuation is barely a concern). I'm likewise concerned that the Street is a little too blasé about the risk of meaningful price/margin pressure from its largest rival in China. While I do think that IPG merits a premium and offers good leverage to industrial capex growth, I think the current share price reflects that and doesn't leave an especially exciting, long-term expected return for investors.
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