Investors often dream of doubling their returns in a short time, but the stocks that do so can be tough to find. Let's take a look back at two lesser-known tech stocks that quietly doubled over the past year, and whether or not they have room to keep running.
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Coherent (NASDAQ: COHR) designs, manufactures, and markets lasers for commercial and scientific research applications. Its lasers are used across a wide variety of markets, including microelectronics manufacturing, materials processing, scientific research, and government programs. It operates two main businesses -- Specialty Lasers (SLS) and Commercial Lasers and Components (CLC).
Lasers might seem like a slow-growth market, but demand for Coherent's precision lasers is rising due to their ability to cut and shape smaller end products for the industrial, tech, and healthcare markets. Manufacturing smaller silicon chips and thinner flat panel displays would be much pricier without Coherent's computer-guided lasers.
That's why Coherent's revenue rose 19% year-over-year last quarter, compared to 16% growth in the previous quarter and 2% growth in the prior year quarter. Its full year revenue rose 7% to $857.4 million, compared to 1% growth in 2015 and a 2% decline in 2014. Coherent's bottom line growth is also very healthy -- its non-GAAP net income rose 19% to $115.9 million in 2016, and its GAAP net income improved 15% to $87.5 million.
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Analysts expect Coherent's revenue and earnings to respectively rise 69% and 63% this year, thanks to robust demand for its lasers and its $942 million acquisition of rival Rofin-Sinar Technologies. After annual comparisons normalize, Coherent revenue and earnings are expected to respectively rise 11% and 17% next year.
Coherent's 111% rally over the past 12 months has boosted its P/E ratio to 36, which is higher than the industry average of 31 for scientific and technical instrument makers but remains fairly reasonable relative to its earnings growth rate. However, insiders have sold over 106,000 shares over the past three months, while buying about 300 shares -- indicating that it may be wise to take some profits after that big rally.
PDF Solutions (NASDAQ: PDFS) provides infrastructure technologies and services for integrated circuits (IC) manufacturers. These solutions include software, test chips, electrical wafer test systems, and professional services -- all to help manufacturers maintain the quality of their IC chips while boosting their overall yield. Those services are becoming increasingly essential as demand for IC chips surges across multiple markets.
PDF's revenue rose 14% annually to $27.3 million last quarter, compared to 15% growth in the previous quarter and 7% growth in the year ago quarter. GAAP net income rose 27% annually to $1.9 million last quarter, but non-GAAP net income dipped 7% to $5.4 million. Looking ahead, analysts expect PDF's revenue to rise 10% this year, but for its non-GAAP earnings to fall 15% on substantially higher R&D costs.
PDF's 109% rally over the past 12 months, which was mainly fueled by bullish enthusiasm for the entire semiconductor industry, has inflated its P/E ratio to 74 -- which is high relative to its projected earnings growth rate and the industry average of 63 for technical system and software companies. The company's insiders have also sold nearly 24,000 shares over the past three months without buying a single share. Therefore, I believe that PDF might be due for a pullback in the near future.
The key takeaways
Coherent and PDF Solutions both provide essential equipment and services for the production of next-gen technologies. But they're often overlooked by investors because they're not OEMs or component suppliers.
Each stock has had a great run over the past year, but I believe that Coherent's lower multiple and more balanced top and bottom line growth make it a safer play than PDF Solutions for now. I don't plan to buy either stock right now, but I'll be keeping an eye on both companies for future buying opportunities.
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