2 Laser Systems Stocks to Buy in a Prospering Industry
The Zacks Laser Systems and Components industry benefits from upbeat demand from electronics, semiconductors and healthcare end-markets. IPG Photonics IPGP and IRIDEX IRIX are well-positioned to benefit from these trends. Robust demand for high-power continuous wave and pulsed laser for cutting and battery-processing applications, growing demand for high-performance optical devices, and the ongoing adoption of cloud computing, autonomous driving, IoT and 5G are the key catalysts. Nevertheless, the industry suffers from supply-chain disruptions, including parts and labor shortages. A strong U.S. dollar, raging inflation, weak economic conditions in Europe, and a sluggish economic environment in China are major headwinds. The demand-supply mismatch is expected to persist in the near term, hurting the prospects of industry participants.
Industry Description
The Zacks Laser Systems and Components industry comprises companies offering high-performance fiber lasers, fiber amplifiers and diode lasers, optical and photonic products, and scanning technology solutions. The key end markets are semiconductors, metrology, advanced communication and medical devices. Industry participants also provide high-precision 3D sensors and system products for inspection and metrology. Moreover, in the medical devices space, laser and other energy-based aesthetic treatments can achieve therapeutic results by affecting structures within the skin. Developing safe and effective aesthetic treatments has resulted in a well-established market for these procedures. The industry also operates in the cyclical surface mount technology and semiconductor capital equipment markets.
3 Laser Systems & Components Industry Trends to Watch
Emerging Applications Driving Demand for Lasers: The industry is benefiting from increasing demand for emerging applications like additive manufacturing, facial recognition, gesture recognition, LiDAR applications and IoT. Advanced lasers, especially those with 3D sensing (3DS) capabilities, are enhancing interactions using technology. Notably, 3DS — the technology that allows users to create 3D printable objects, control games with body gestures and measure objects — is in high demand.
Laser-IoT Combination Supports Efficiency: As industries are increasingly adopting automation techniques, combining lasers with IoT improves operating efficiency. IoT-supported manufacturing equipment is far easier to update with firmware. The combination reduces costs and increases the flexibility and reliability manifold by enabling material-handling capabilities through remote sources. Strong demand from semiconductor and allied markets, which are seeing a rapid shift toward the production of micro and nano devices, is another positive for industry participants.
Supply-Chain Disruption Hurts Prospects: Industry participants suffer from supply-chain disruptions. The demand-supply mismatch is expected to persist in the near term, hurting the prospects of industry participants. Moreover, raging inflation, a strong U.S. dollar, energy headwinds in Europe and weakness in China are expected to hurt industry participants in the near term.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Laser Systems and Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #115, which places it in the top 46% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Given the bullish outlook, there are few stocks worth buying in the industry. But before we present the top industry picks, it is worth looking at the industry’s shareholder returns and current valuation first.
Industry Underperforms Broader Sector and S&P 500
The Zacks Laser Systems and Components industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year.
The industry has declined 4.1% over this period against the S&P 500’s rise of 17% and the broader sector’s return of 25.8%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month P/S, which is a commonly used multiple for valuing Laser Systems and Components stocks, we see that the industry is currently trading at 6.60X compared with the S&P 500’s 3.83X. It is also trading above the sector’s trailing 12-month P/S of 3.72X.
Over the last five years, the industry has traded as high as 12.64X and as low as 3.19X, with a median of 6.05X, as the charts below show:
Trailing 12-Month Price-to-Sales (P/S) Ratio
2 Laser Stocks to Buy Right Now
IPG Photonics: Oxford, MA-based IPG Photonics develops and manufactures fiber and diode lasers, fiber amplifiers and transceivers for diverse applications like materials processing, advanced applications, communications and medical. The stock has gained 42.3% in the year-to-date period.
IPG Photonics is benefiting from strong demand for the handheld welder, LightWELD, driven by robust sales of EV applications. Cleaning and solar cell manufacturing solutions are also in demand due to increasing investment in renewable energy and eco-friendly solutions. The company’s initiatives to diversify its revenue base and reduce exposure to cyclical and economically sensitive industrial markets bode well for investors.
The Zacks Consensus Estimate for IPGP’s 2023 earnings has declined 1.1% to $5.13 per share in the past 30 days. IPG Photonics currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: IPGP
IRIDEX: This Mountain View, CA-based ophthalmic medical technology company focuses on the development and commercialization of breakthrough products and procedures used to treat sight-threatening eye conditions, including glaucoma and retinal diseases.
IRIDEX is benefiting from strong customer demand for its Cyclo G6 glaucoma laser platform. Strong international demand is also driving growth.
IRIX shares have declined 25.3% in the past year. The consensus mark for this Zacks Rank #2 (Buy) company’s 2023 loss has been unchanged at 36 cents per share over the past 30 days.
Price & Consensus: IRIX
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IPG Photonics Corporation (IPGP) : Free Stock Analysis Report
IRIDEX Corporation (IRIX) : Free Stock Analysis Report
