The Zacks Laser Systems and Components industry comprises companies offering high-performance fiber lasers, fiber amplifiers and diode lasers, high precision 3D sensors, optical and photonic products, and scanning technology solutions. The key end-markets are semiconductor, metrology, advanced communication and medical devices.
Here are the three major themes in the industry:
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. 3DS is much in demand. The technology allows users to create 3D printable objects, control games with body gestures and measure objects.
As industries are increasingly adopting automation techniques, combining lasers with IoT improves operating efficiency. Notably, IoT-supported manufacturing equipment is far easier to update with firmware. The combination not only reduces costs but also increases flexibility and reliability manifold by enabling material handling capabilities through remote sources. Additionally, strong demand from semiconductor and allied markets, which are seeing a rapid shift toward production of micro and nano devices, is a positive for industry participants.
Trade war tensions between the United States and China have affected the Laser Systems and Components industry. Tariffs on optical fibers and instruments, lasers and photonics technologies have impeded growth. Moreover, a slowing Chinese economy is a concern as industry players like IPG Photonics (IPGP) have significant exposure to the country’s industrial laser market. Additionally, soft infrastructure spending in China significantly reduced demand for lasers, affecting top-line growth of industry participants.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Laser Systems and Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #74, which places it in the top 29% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic on this group’s earnings growth potential. Since Jul 31, 2019, the industry’s earnings estimates for the current year have moved up 1.8%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags on Shareholder Returns
The Zacks Laser Systems and Components industry has lagged the broader Zacks Computer and Technology sector as well as the Zacks S&P 500 composite over the past year.
The industry has lost 30.4% over this period compared with the S&P 500’s decline of 2% and the broader sector’s fall of 4.5%.
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 4.04X compared with the S&P 500’s 3.12X. It is also trading above the sector’s trailing 12-month P/S of 3.58X.
Over the last five years, the industry has traded as high as 7.12X, as low as 2.62X and at the median of 4.02X, as the chart below shows.
Trailing 12-Month Price-to-Sales (P/S) Ratio
Stocks to Watch
The Zacks Laser Systems and Components industry is expected to benefit from growing customer need to enable faster and higher precision volume manufacturing techniques with lower power consumption despite a slowing China market and negative tariff impact.
None of the stocks in the industry sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
However, we are presenting three stocks with a Zacks Rank #2 (Buy) that investors may want to pick right now.
Brisbane, CA-based Cutera (CUTR) is a global provider of laser and energy-based aesthetic systems for physicians and other qualified practitioners. The Zacks Consensus Estimate for its current-year earnings stayed at 13 cents over the past week.
Price & Consensus: CUTR
Mountain View, CA-based IRIDEX (IRIX) is an ophthalmic medical technology company that uses laser products to treat sight-threatening eye conditions, including glaucoma and retinal diseases. The consensus estimate for the company’s current-year bottom line has remained at a loss of 74 cents over the past seven days.
Price & Consensus: IRIX
Milpitas, CA-based Lumentum Holdings (LITE) offers optical and photonic products. The Zacks Consensus Estimate for fiscal 2020 earnings stayed flat at $4.54 over the past seven days.
Price & Consensus: LITE
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Lumentum Holdings Inc. (LITE) : Free Stock Analysis Report
IRIDEX Corporation (IRIX) : Free Stock Analysis Report
IPG Photonics Corporation (IPGP) : Free Stock Analysis Report
Cutera, Inc. (CUTR) : Free Stock Analysis Report
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