Coherent Stock May Fall 15% Despite Improving Profits
Coherent Shares Inc. (NASDAQ: COHR) is up nearly 1.8 times since the start of this year, and at the current price of $ 264 per share, we believe Coherent stock has downside potential of around 15%.
Why is that? Our belief stems from the fact that Coherent stock has risen 2.5 times since the end of 2018, and after the recent mixed earnings trend, we believe Coherent stock may go down. Our dashboard What factors caused a 150% change in consistent actions between 2018 and now? provides the key figures for our thinking, and we explain more below.
Coherent is a manufacturer of laser equipment and components, used in a variety of applications. Coherent has seen a 31% drop in revenue since 2018 (Coherent’s fiscal year ends in September), which, combined with a meager 1% drop in the number of shares outstanding, resulted in a revenue per share decreased 31%, from $ 77.50 to $ 53.90.
Additionally, Coherent’s P / S (price / sales) ratio fell from 1.4x in 2018 to 3x in 2019, due to increased investor expectations. Coherent Inc. experienced a decline in profitability from 2018 to 2020, with EPS dropping from $ 10.07 to – $ 17.18 during this period, due to revenue falling faster than expenses and a large goodwill impairment charge of $ 450 million in 2020. However, Coherent’s P / S ratio has climbed again to nearly 5x currently, benefiting from the rally in semiconductor and tech stocks. We believe that given Coherent’s mixed performance in Q2 ’21, there is a possible downside risk for the P / S multiple.
So what is the trigger and the likely timing of this downside?
The global spread of the coronavirus and the resulting lockdowns have hampered industrial activity, leading to a drop in demand for semiconductors from the industrial and materials processing sector. This severely hampered demand for Coherent lasers in these industries initially, but demand has since picked up. This is clear from Coherent’s second quarter 2021 results, where revenue was $ 374 million, compared to $ 293 million for the second quarter of 2020. Operating loss fell from $ 449 million. dollars to $ 196 million during this period, despite a merger and acquisition charge of $ 232 million. However, second quarter 2020 earnings included significant goodwill of $ 451 million and other impairment losses, which caused EPS to fall to – $ 17.39. In comparison, EPS for the last quarter improved to -6.49 $.
However, it’s important to note that fiscal 2020 revenue (at $ 1.23 billion) was significantly lower than fiscal 2018, which stood at $ 1.9 billion. Despite the increase in demand and year-on-year revenue in Q2 2021, given Coherent’s overall revenue and profit trend since fiscal 2018, we believe the company justifies a lower P / S multiple. While Coherent’s FY2021 earnings (expected in November this year) will paint a clearer picture, we believe that in the near term, the stock will see its P / S multiple drop from the current level of 4.9x. at 4x, which, while supported by a slight increase in revenues and margins, could cause the share price to drop to $ 225, a drop of almost 15% from the current price of nearly $ 264.
What if you were looking for a more balanced portfolio instead? here is a high quality wallet that beat the market since 2016.
See everything Featured analyzes from Trefis and Download Trefis data here