The Zacks Laser Systems and Components industry comprises companies offering high-performance fiber lasers, fiber amplifiers and diode lasers, high precision 3D sensors, optical and photonic products, and scanning technology solutions. The key end-markets are semiconductor, metrology, advanced communication and medical devices.
Here are the three major themes in the industry:
- Trade war tensions between the United States and China had an impact on the Laser Systems and Components industry. Tariffs on optical fibers and instruments, lasers and photonics technologies have impeded growth. Moreover, a slowing Chinese economy is a concern as the industry players have significant exposure to the country’s industrial laser market. Additionally, soft infrastructure spending in China significantly reduced demand for lasers, affecting top-line growth of industry participants.
- The industry is expected to benefit from emerging applications like additive manufacturing, facial recognition, gesture recognition, LIDAR applications and IoT. Advanced lasers, especially those with 3D sensing (3DS) capabilities, are enhancing interactions using technology. 3DS technology is much in demand among major smartphone makers who are looking to incorporate the technology in their products. The technology allows users to create 3D printable objects, control games with body gestures and measure objects.
- As industries are increasingly adopting automation techniques, combining lasers with IoT improves operating efficiency. Notably, IoT-supported manufacturing equipment is far easier to update with firmware. The combination not only reduces costs but also increases flexibility and reliability manifold by enabling material handling capabilities through remote sources. Additionally, strong demand from semiconductor and allied markets, which are seeing a rapid shift toward production of micro and nano devices, is a positive for industry participants.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Laser Systems and Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #220, which places it in the bottom 14% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic on this group’s earnings growth potential. Since Dec 31, 2018, the industry’s earnings estimates for the current year have moved 16.9% down.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags on Shareholder Returns
The Zacks Laser Systems and Components industry has lagged the broader Zacks Computer and Technology sector as well as the Zacks S&P 500 composite over the past year.
The industry has declined 20.5% over this period against the S&P 500’s rally of 10% and the broader sector’s rise of 13.1%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of the trailing 12-month P/S, which is a commonly used multiple for valuing Laser Systems and Components stocks, we see that the industry is currently trading at 5.04X compared with the S&P 500’s 3.32X. It is also trading above the sector’s trailing 12-month P/S of 3.83X.
Over the last five years, the industry has traded as high as 7.11X, as low as 2.62X and at the median of 3.91X, as the chart below shows.
Trailing 12-Month Price-to-Sales (P/S) Ratio
A slowing China market and negative tariff impact weigh on the prospects of the Zacks Laser Systems and Components industry.
None of the stocks in the industry carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
However, we are presenting three stocks with a Zacks Rank #3 (Hold) that investors may want to hold on to.
Minneapolis, MN-based CyberOptics Corporation (CYBE - Free Report) has returned 0.7% on a year-to-date basis. The Zacks Consensus Estimate for current-year earnings has remained steady at 50 cents over the past 30 days.
Price & Consensus: CYBE
Redmond, WA-based MicroVision (MVIS - Free Report) has returned 54.8% on a year-to-date basis. The consensus estimate for the company’s current-year bottom line has remained at a loss of 22 cents over the past 30 days.
Price & Consensus: MVIS
Milpitas, CA-based Lumentum Holdings (LITE - Free Report) has gained 47.8% year to date. The Zacks Consensus Estimate for fiscal 2019 earnings has declined by a penny to $4.20 over the past 30 days.
Price & Consensus: LITE