IPG Photonics Corp (NASDAQ:IPGP)

CAPS Rating: 5 out of 5

The Company designs and manufactures a line of high-performance fiber lasers and fiber amplifiers for diverse applications in numerous markets, such as materials processing, communications, medical and advanced applications.

Recs

8
Player Avatar TMF1000 (99.69) Submitted: 6/15/2012 11:03:52 AM : Outperform Start Price: $41.73 IPGP Score: +0.52

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.

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Member Avatar TruffelPig (< 20) Submitted: 8/16/2012 9:50:31 PM
Recs: 1

In my portfolio I followed down to 35 and bought. I sold the inbetween buys on the way up - 75% up my position is.

Member Avatar TMF1000 (99.69) Submitted: 6/5/2013 10:31:35 PM
Recs: 1

The Company is benefiting from the recovery in the automobile and aerospace industry. I don’t see why this trend should change, the economy is improving thanks in part of cheaper oil, but also the belief that oil is becoming more abundant in the U.S because of “oil from shale” and new natural gas finds are encouraging more natural gas refueling stations which someday could stabilize energy prices. If energy prices remain stable the economy should continue to improve which would keep IPGP surging.

Sales from Asia are soaring; even sales from Europe posted 8% gains. North American sales were flat which would be upsetting if it weren't for the fact that sales from this region was coming off a very tough comparison. Sales for this region were up 25.6% last year. And a decrease in sales for the other application lasers which can be lumpy isn't a reason to be concerned. New ‘other applications’ lasers may increase sales at any time. Sales to Automobile and Aerospace were up in North America, so this isn't a reflection on the economy.

The Company believes that lasers are still in the early adoption for welding applications in the automobile industry. As Fiber lasers prices go down, more CO2 lasers will be replaced.

IPGP is still is a state of transition. They have a disruptive technology that provides a superior service, but the price is still somewhat high. Even so, the fiber laser market is supposed to grow to $1.365 billion by 2015. Fiber laser sales were only $588 million in 2011. This is only about 28.6% of the total laser market and IPGP believes they can capture 50% to 75% of that market in just 3 to 5 years.

Can fiber lasers replace CO2 lasers? The Company believes that there is a mistaken perception that fiber lasers cannot do the job of CO2 lasers when you must cut metal up to an inch think. IPGP believes they have proven this wrong in the labs, but now it has to be proven commercially. They think they can overcome this last perceived advantage of CO2 lasers this year. No one wants to spend the money to buy two laser systems because one does a better job for one application while the other does a better job on another, if both do the jobs reasonably well. If IPGP can overcome this last perceived advantage of CO2 lasers this would prove a very large market and opportunity for them.

Fiber lasers have many advantages and I believe IPGP will succeed in expanding their usage for new applications. So sales that slow or accelerate and slow again may not be the important fact on which to focus. Investors must believe they have a superior technology that someday will replace the majority of competing lasers in the industry today. This is occurring and I see no reason why that trend should stop.

One of the reasons they chose to become a vertically integrated company, something I posted about in the past, is that they stand a better chance of keeping trade secrets in-house. I believe this company has a technology advantage over competitors that will allow them to continue to grow and take market share.

Perhaps it is just a good story, but if it is, they are doing something that most technology companies don’t do – they are allowing investors to benefit more. For a technology company their stock based compensation is among the lowest. In fact, it is low even compared to regular companies. It is one of the reasons, earnings are substantial. So unlike so many other technology companies – IPGP is allowing investors to benefit as the story unfolds. I like that.

And the company is growing and taking market share and expanding the use of fiber lasers over more applications. Today the price is $59.27 and the PE ratio is 20.65. They have a very strong balance sheet. They are very dependent on the economy, but the economy seems to be doing better as the energy supply is stabilizing. I don’t believe there is a great deal of risk investing in IPGP at these prices provided one is ready to add more if the economy does weaken, particularly if we go back into a recession. Although that isn't likely to happen soon it might happen between now and the next five years. It is something for which investors should always prepare.

Remember too they paid a special dividend of $0.65 last year. They produce strong streams of cash flow so they could certainly afford to repeat the dividend this year or they could buy back shares. Of course they may continue to buy companies that allow them to enter new markets and grab market share from competitors. I find them a very interesting technology company and a very non-greedy one.

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