China Likely Bottoming For IPG Photonics, But Rising Competition Is A Threat

Shares of fiber laser specialist IPG Photonics (IPGP) have rebounded strongly from late December lows (up almost 45%) as investors are less fearful of a sharp decline in sales to China and overall industrial demand, as well as holding more optimism over future opportunities in core cutting/welding, 3D manufacturing, EV battery assembly, and so on. Although I do believe revenue could return to year-over-year growth in the second half of this year, I’m more concerned about the long-term margin consequences of increased competition from Chinese rivals and whether IPG can continue to find attractive new markets/applications for higher-performance lasers that would really allow the company to leverage its R&D and engineering advantages.

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China Likely Bottoming For IPG Photonics, But Rising Competition Is A Threat

Seeking Alpha: IPG Photonics Continues To Grow, While Growing Its Addressable Markets

Fiber laser pioneer IPG Photonics (NASDAQ:IPGP) continues to execute pretty well, though you may not know it from the reaction of the market. I still liked the long-term fundamental story back in March, but thought the valuation was getting a little steep. Since then, the shares have gone almost nowhere (while large laser rival Rofin-Sinar (NASDAQ:RSTI) has declined a few percentage points).

I think the last six months or so may be an example of a pause that refreshes. Fiber lasers continue to gain share in core markets like cutting, welding, and marketing, and IPG Photonics continues to develop products for multi-hundred million dollar applications like UV microprocessing, aluminum and high-strength steel welding, and sapphire glass cutting. IPG Photonics continues to leverage its cost and manufacturing advantages and hasn't seen a particularly deleterious impact from Chinese competition yet. With the shares looking about 10% undervalued, I'm warming up to IPG Photonics as a stock to acquire at these prices.

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IPG Photonics Continues To Grow, While Growing Its Addressable Markets