IPG Photonics Corporation

IPGP Details

IPG Photonics Corporation (NASDAQ: IPGP) is a developer and manufacturer of high-performance fibre lasers, fibre amplifiers, and diode lasers for various applications. It also offers laser-based and non-laser-based solutions for specific markets and applications. The company's laser technologies are used in multiple applications, including materials processing, communications, medicine, and advanced applications. It sells to original equipment manufacturers (OEMs), system integrators, and end customers worldwide. The company's primary production sites are in the United States, Germany, Russia, and Belarus. 

FY21 Results:

• Growth in Topline: The company reported YoY growth of 21.66% in net sales to USD 1.46 billion in FY21 (ended December 31, 2021) from USD 1.20 billion in FY20.
• Surge in Profitability: In FY21, IPGP's net income surged to USD 277.87 million from USD 160.34 million in FY20.
• Cash and Debt Position: As of December 30, 2021, the company had USD 1.51 billion in cash and cash equivalents (including short-term investments) and total debt of USD 34.16 million.

Key Risk:

• Customer Concentration Risk: IPGP's five largest clients accounted for 24%, 21%, and 26% of the net sales in FY20, FY19, and FY18, respectively. Such excessive reliance on a few critical clients for income could hurt the company's financial and operational health in the future.
• Reduction in ASPs: IPGP's goods are experiencing and may continue to experience a significant reduction in Average Selling Prices (ASPs) due to new product and technological innovation, increased competition, and pricing demands from critical customers.

Outlook:

• Q1FY22 Estimates: As of February 15, 2022, IPGP expects Q1FY22 revenue in the range of 320 – 350 million, along with diluted EPS of USD 0.85 – 1.15.
• FY22 Estimates: In FY22, the company anticipates a moderate total revenue growth rate of 3 to 6%, with non-cutting applications seeing strong growth. In the medium to long term, it expects double-digit total revenue growth.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation:

IPGP's stock price has fallen 29.38% in the past nine months and has made new 52-week low today. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 171.66.

Considering the correction in the stock price, market dominance in the Laser Fibre Technology space, encouraging outlook, strong balance sheet, solid profitability margins, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 137.55, down 6.22% as of February 15, 2022.

Three-Year Technical Price Chart (as on February 15, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.