IPG Photonics Corp (NASDAQ:IPGP)

TMF1000 (99.78) Submitted: 6/15/2012 11:03:52 AM : Start Price: $41.73 IPGP Score: +11.90

IPGP was entered into CAPs at a price of $42.15

I entered IPGP on my Caps before and today I dropped it at a loss so I could reup it at a value point at which I would personally like to add the company to my portfolio. I wanted to added it last year, had my value point set, and then forgot to add it. I hope I don't forget this time. I have to wait two business day to buy after posting this post on them.

I entered IPGP twice on my CAPS, because I believe they are still in the early stages of fiber laser adoption for industrial manufacturing applications. The Company also says they aren’t seeing any increase in competition. Between 2006 and 2011, the fiber market grew 27%, but in 2011, it grew 60%. They believe the fiber market will grow to a $1.4 billion industry and if they can maintain market share, they believe they will produce sales of over $1 billion from this segment. The Company believes they have over 90% of the high power fiber business. The overall laser market is about a $3.8 billion market and expected to grow to $5 million by 2015.

I believe they will also successfully enter new markets. They are working on systems sales which are an $8 billion annual market.

IPGP’s recent drop in price is probably driven by fear of a recession or weaker economic times. A weak economy would hurt the customers that buy IPGP lasers. So the drop in price in my opinion is linked on fear, not on fundamentals. The last report was excellent. In fact, the price rose 13.4% the day of that report, yet the price has moved right back down.

Last year, they did the same thing. Remember October 4, 2011?

http://caps.fool.com/Blogs/remember-oct-4-2011-dow/732605

Last year, the dropped from a high of $74.18 just a few quarters before to a October 4th low of $40.50. At $40.50 the PE ratio 20.88. During that drop earnings were soaring – fear was driving the price as the Dow dropped from what was then a post recession high to a low of 10362.26. It rebounded to $61.18 a few quarters later. Today the price is $42.17 and the PE ratio is 16.54. That represents a better value point then the value point they hit on October 4, 2011 as measured by the PE ratio, so I think they are cheap.

But there is always that caveat – A recession will hurt them. A recession in Europe would hurt them. Presently about 34.1% of their sales come from Europe and the fear of a European recession is helping to drive the price down.

I can’t predict recessions. If there isn’t one, IPGP will probably make another big recovery just like last year. If there is a recession, the price will drop creating an even better opportunity to buy. It is those unpredictable things that influence my strategy to buy in stages at better and better value points and build for the future. The fiber laser market looks like a great opportunity to build positions for the future at better and better value points.

The Great Recession took the price down to $6.79 or a PE ratio of 8.6.

** Trading range between February 24, 2009 and May 5, 2009 was $6.79 to $11.68: PE ratio range was 8.6 to 14.78: PS ratio range was 1.38 to 2.36

A similar value point today would drop the price to $21.93. But it took a global recession, a very deep recession, to create that type of damage. Today’s price looks like a logical point to add shares.