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IPG Photonics To Cross $2 Billion Revenue Mark By 2020

Summary

Despite a somewhat dismal 3Q, IPG Photonics remains on track to achieve medium-term revenue growth of more than 10% per annum.

Moreover, its stable margins will lead to further improved operating cash flows in the future.

Based on these fundamentals, the stock remains undervalued by 18% and therefore deserves a Buy recommendation.

Introduction:

IPG Photonics Corporation (NASDAQ:IPGP) was originally formed in 1990 in Russia by physicist Valentin P. Gapontsev, specializing in fiber lasers and recipient of various awards. The company was later incorporated in the US in 1998. IPG Photonics is the manufacturer of fiber lasers and fiber amplifiers which are used in a variety of applications including materials processing, medical applications, telecom and other advanced applications which includes atom trapping, space communications, atmospheric wind measurement and ordnance destruction. Other advanced applications include nuclear decommissioning, lidar/obstacle warning, optical pumping, test and measurement, remote sensing, coherent laser radar and others.

Financial Analysis:

IPG Photonics has had tremendous revenue growth in CY10-11 immediately after the economic downturn of 2008-09 when markets started to recover. The revenue growth thereafter has slowed down some from hovering below 20% but still retained some steam in CY14 as they grew by 19% and the run-rate based CY15 revenues are lower at 17%. However, the company expects higher growth in the fourth quarter of the year which will ultimately push the annual sales higher by a larger percentage which is in continuation of the market performance during the prior three quarters.

The company's competitive edge is its application of the fiber laser technology which has a more uniform beam quality which enables precision, increased power density and longer distances. It is also lower in cost and easy to use as a result of its compact size and ability to choose wavelength and allowing precise control. This has allowed the IPGP to achieve considerable growth over the past few years despite economic weaknesses as the market demand continued to grow.

Current revenue growth rates indicate towards saturation of this new laser technology but with the increased application in different areas the market continues to expand. For instance advanced application of fiber lasers involves communication, medical applications and other varied applications...


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