IPG Photonics Stock always gives
The stock of IPG Photonics (NAS: IPGP, 30-year Financials) is estimated to be significantly overvalued, according to the GuruFocus value calculation. The GuruFocus Value is GuruFocus’s estimate of the fair value at which the stock is to trade. It is calculated based on the historical multiples at which the stock has traded, the company’s past growth, and analysts’ estimates of the company’s future performance. If a share‘s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly below the GF value line, its future return is likely to be higher. At its current price of $ 207.41 per share and market cap of $ 11.1 billion, IPG Photonics stock is showing all signs of significant overvaluation. The GF value for IPG Photonics is shown in the table below.
Given that IPG Photonics is significantly overvalued, the long-term return on its stocks is likely to be much lower than the future growth of its business, which is expected to grow by 2.90% per year over the next three to five years.
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Investing in companies with low financial strength presents a higher risk of permanent loss of capital. Thus, it is important to carefully consider the financial strength of a company before deciding whether or not to buy its shares. Examining the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a business. IPG Photonics has a cash-to-debt ratio of 33.91, which is better than 83% of companies in the semiconductor industry. GuruFocus ranks the overall financial strength of IPG Photonics at 8 out of 10, which indicates that the financial strength of IPG Photonics is strong. Here is IPG Photonics’ debt and cash flow over the past several years:
Investing in profitable businesses carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a business with high profit margins offers better performance potential than a business with low profit margins. IPG Photonics has been profitable 10 years out of the past 10 years. In the past 12 months, the company reported sales of $ 1.3 billion and earnings of $ 3.55 per share. Its operating margin of 22.20% higher than 86% of semiconductor industry companies. Overall, GuruFocus ranks IPG Photonics’ profitability as strong. Here is IPG Photonics’ revenue and bottom line for the past few years:
One of the most important factors in the valuation of a business is growth. Long-term equity performance is closely linked to growth, according to GuruFocus research. Firms that grow faster create more shareholder value, especially if that growth is profitable. The average annual revenue growth of IPG Photonics is -4.7%, which is worse than 68% of companies in the semiconductor industry. The 3-year average EBITDA growth is -19.3%, which is worse than 87% of companies in the semiconductor industry.
Another way to assess a company’s profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on Invested Capital (ROIC) measures the extent to which a business generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company should pay on average to all of its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating shareholder value. Over the past 12 months, IPG Photonics’ ROIC was 15.61, while its WACC was 9.67. The ROIC vs WACC historical comparison of IPG Photonics is shown below:
In short, the stock of IPG Photonics (NAS: IPGP, 30-year Financials) gives any indication of being significantly overvalued. The company’s financial position is solid and its profitability is solid. Its growth ranks worse than 87% of companies in the semiconductor industry. To learn more about IPG Photonics stock, you can view its 30-year financial data here.
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