Fast Growing Laser Maker Is Trading At A Substantial Discount

Jun.25.12 | About: IPG Photonics (IPGP)

Concerns about a slowdown in worldwide growth have made for a very turbulent three months in the market. Ironically, after a sharp pullback, some growth stocks are priced to a large discount to their long term value. One such stock is a fast growing maker of lasers, IPG Photonics (NASDAQ:IPGP).

"IPG Photonics Corporation develops and manufactures fiber lasers, fiber amplifiers, and diode lasers. Its laser products include low, medium, and high output power lasers from 0.5 to 2 microns in wavelength; fiber pigtailed packaged diodes and fiber coupled direct diode laser systems; high-energy pulsed lasers, multi-wavelength and tunable lasers, and single-polarization and single-frequency lasers; solid-state lasers; laser diode chips and packaged laser diodes operating at 9XX nanometers; and high power optical fiber delivery cables, fiber couplers, beam switches, chillers, and accessories." (Business description from Yahoo Finance)

7 reasons IPGP is a good long term growth play at just over $42 a share:

  1. Despite the 30% pullback in IPGP's stock in the last three months, consensus earnings estimates for both FY2012 and FY2013 have actually ticked up in that time span.
  2. The company has a robust balance sheet with nearly $370mm in net cash (around 15% of market capitalization) on its books.
  3. IPGP is expected to grow revenues in the 16% to 18% range for both FY2012 and FY2013 and the stock has a projected five year PEG of under 1 (.64). It also has grown EPS at a 34% annual clip over the past five years.
  4. The ten analysts that follow the stock have a median analysts' price target of $66.50 a share on IPGP, 50% above the current stock price.
  5. The company grew operating cash flow by approximately 70% from FY2009 to FY2011 and continues to show impressive cash flow growth in FY2012.
  6. The stock is selling near the bottom of its five year valuation range based on P/B, P/E, P/S and P/CF.
  7. IPGP is priced at around 13 times forward earnings, half its five year average (26.4).

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in IPGP over the next 72 hours.