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LITE vs. IPGP: Which Stock Should Value Investors Buy Now?

Zacks Equity Research
Sportsman's Warehouse (SPWH) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

Investors interested in stocks from the Lasers Systems and Components sector have probably already heard of Lumentum (LITE) and IPG Photonics (IPGP). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Lumentum and IPG Photonics are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that LITE is likely seeing its earnings outlook improve to a greater extent. But this is just one factor that value investors are interested in.

Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.

Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.

LITE currently has a forward P/E ratio of 10.89, while IPGP has a forward P/E of 18.50. We also note that LITE has a PEG ratio of 0.64. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. IPGP currently has a PEG ratio of 2.

Another notable valuation metric for LITE is its P/B ratio of 3.05. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, IPGP has a P/B of 3.23.

These are just a few of the metrics contributing to LITE's Value grade of B and IPGP's Value grade of C.

LITE stands above IPGP thanks to its solid earnings outlook, and based on these valuation figures, we also feel that LITE is the superior value option right now.


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