Upbeat Near-Term View for Laser Systems & Components Industry

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. Notably, 3DS, the technology that allows users to create 3D printable objects, control games with body gestures and measure objects, is much in demand.

 

• 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.

 

• Improvement in the China market post coronavirus-induced disruptions bodes well for industry players like IPG Photonics (IPGP), which has a significant exposure to the country’s industrial laser market. However, weak demand in Europe and North America due to the COVID-19 outbreak is expected to hurt top-line growth, at least in the near term. Moreover the U.S. ban on Huawei is a bother. Inventory build-up at this Chinese tech giant worries its component suppliers, some of whom are customers of the Laser Systems and Components industry players.

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 #78, which places it in the top 31% 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 bullish 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.

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 Broader Industry, Beats S&P 500

The Zacks Laser Systems and Components industry has underperformed the broader Zacks Computer and Technology sector but outperformed the Zacks S&P 500 composite over the past year.

The industry has risen 9.5% over this period compared with the S&P 500’s increase of 4% and the broader sector’s rally of 16.8%.

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 6.34X compared with the S&P 500’s 3.20X. It is also trading above the sector’s trailing 12-month P/S of 4.22X.

Over the last five years, the industry has traded as high as 7.51X, as low as 2.77X and at the median of 4.53X, 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 the growing consumer need to enable faster and higher precision volume manufacturing techniques with lower power consumption despite the coronavirus fallouts.

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 a stock with a Zacks Rank #2 (Buy) that investors may want to pick right now.

Minneapolis, MN-based CyberOptics’ (CYBE) shares have returned 90.2% in the past year.

The company is a leading provider of sensors and inspection systems that provide process yield and throughput improvement solutions for the global electronic assembly and semiconductor capital equipment markets.

The Zacks Consensus Estimate for CyberOptics’ current-year earnings has stayed at 27 cents per share over the past month.

Price & Consensus: CYBE

We also a present a Zacks Rank #3 (Hold) stock that investors may currently hold on to.

Milpitas, CA-based Lumentum Holdings (LITE) offers optical and photonic products. Shares have surged 45.7% in the past year.

The consensus mark for fiscal 2020 earnings has moved 1.7% south to $5.09 per share over the past 30 days.

Price & Consensus: LITE

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Lumentum Holdings Inc (LITE) : Free Stock Analysis Report
 
IPG Photonics Corporation (IPGP) : Free Stock Analysis Report
 
CyberOptics Corporation (CYBE) : Free Stock Analysis Report
 
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