Laser Systems Industry Faces Headwinds Amid Global Economic Struggles
The Zacks Laser Systems and Components industry is grappling with tough global economic conditions. Economic slowdowns in Europe and China, coupled with low PMI numbers in major regions like North America and Japan, are dampening industrial demand and capital investments. Despite these challenges, companies such as IPG Photonics (IPGP) and MicroVision (MVIS) are seeing strong demand from sectors including electric vehicles, electronics, semiconductors, and healthcare. The increasing need for high-power continuous wave lasers and new technologies in fields like Generative AI, cloud computing, and autonomous driving serve as key growth drivers.
Understanding the Industry
The Zacks Laser Systems and Components industry includes firms that provide high-performance fiber lasers, fiber amplifiers, diode lasers, optical products, and scanning solutions. Key markets encompass semiconductors, advanced communication, metrology, and medical devices. Notably, the aesthetic medicine segment utilizes lasers for therapeutic skin treatments, establishing a solid market for these procedures. The industry is also involved in cyclical markets related to surface mount technology and semiconductor capital equipment.
Key Trends Influencing the Industry
New Applications Boosting Laser Demand: Growing interest in applications such as additive manufacturing, facial recognition, and IoT is increasing laser demand. Advanced lasers equipped with 3D sensing capabilities are now enabling innovative technology interactions. Notably, 3D sensing allows for the creation of 3D-printed objects and gesture-based game controls, driving demand further.
Efficiency Through Laser-IoT Integration: As automation becomes more widespread, pairing lasers with IoT systems boosts operational efficiency. IoT-enabled manufacturing tools simplify firmware updates, reduce costs, and enhance flexibility and reliability by enabling remote material handling. Strong growth in semiconductor markets, especially in micro and nano device production, adds to the optimism for industry participants.
Economic Challenges Weighing Down the Industry: Current macroeconomic challenges lead to lower capital spending from original equipment manufacturers. Continuous inflation, high energy costs in Europe, and economic weakness in China pose additional hurdles for industry players in the near future.
Industry Rankings Reveal Pessimistic Outlook
The Zacks Laser Systems and Components industry falls under the broader Zacks Computer and Technology sector and holds a Zacks Industry Rank of #175, placing it in the bottom 30% of over 250 Zacks industries. This ranking suggests a bearish near-term outlook, supported by evidence that top-ranked industries outperform those in the bottom half by more than two to one.
The industry’s ranking reflects a negative earnings outlook for many of its member companies. Recent data shows that, as of November 30, 2023, forecasts for 2024 earnings have dropped from a profit to a loss of 43 cents per share.
While the overall outlook appears bleak, a few companies within the sector still warrant attention. However, it is crucial to first review the industry’s shareholder returns and current valuation before discussing top picks.
Performance Compared to Broader Markets
Over the past year, the Zacks Laser Systems and Components industry has underperformed both the broader Zacks Computer and Technology sector and the S&P 500 composite. The industry has seen a decline of 15.2%, while the S&P 500 has risen by 20.6% and the broader sector has gained 23.9%.
One-Year Price Performance
Current Valuation of the Industry
Currently, the industry trades at a trailing 12-month price-to-sales (P/S) ratio of 7.67, which is above the S&P 500’s 5.62 and slightly exceeds the sector’s P/S of 7.57. Over the past five years, the industry has fluctuated between a high of 7.81 and a low of 5.04, with a median P/S of 6.15 as the charts below illustrate:
Trailing 12-Month Price-to-Sales (P/S) Ratio
Two Notable Laser Stocks
IPG Photonics: Located in Oxford, MA, this company is experiencing a downturn in materials processing sales, particularly in cutting and welding applications. A drop in demand from essential markets, especially e-mobility in China, along with fierce competition, has hindered growth. However, promising products like LightWELD could bounce back sales. Their advancements in EV battery manufacturing, along with partnerships such as the one with Miller Electric, could bolster revenue in the future.
As of now, IPGP shares have declined by 24.2% year to date. The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) company’s fiscal 2024 earnings has seen a 15% uptick, reaching $1.53 per share over the past month.
Price & Consensus: IPGP
MicroVision: Based in Redmond, WA, MicroVision specializes in MEMS-based solid-state lidar technology for automotive applications. Unfortunately, its stock has fallen by 65% this year. However, MicroVision has a diverse product range, offering various advanced LiDAR products with competitive features.
Currently, the Consensus Estimate for MicroVision’s 2024 loss remains steady at 49 cents per share over the past month. MicroVision also holds a Zacks Rank #3.
Price & Consensus: MVIS
Expert Picks for Future Growth
From a pool of thousands of stocks, five Zacks experts have highlighted their top growth picks, with one being highlighted by the Director of Research, Sheraz Mian, for potential doubling in value within months.
This highlighted company targets millennial and Gen Z consumers, generating nearly $1 billion in revenue last quarter alone. A recent pullback suggests it may be an excellent time to invest. While some selections may not yield returns, this one has the potential to surpass previous Zacks’ stocks that have doubled, like Nano-X Imaging, which gained +129.6% in just over nine months.
Free: Discover Our Top Stock and Four Additional Picks
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IPG Photonics Corporation (IPGP): Free Stock Analysis Report
Microvision, Inc. (MVIS): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
