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:
- The industry is benefiting from increasing demand for 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. Notably, 3DS, the technology that allows users to create 3D printable objects, control games with body gestures and measure objects, is much in demand.
- 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.
- The Phase-One deal between the United States and China is a positive for the Laser Systems and Components industry. However, a slowing Chinese economy is a concern as industry players like IPG Photonics (IPGP - Free Report) 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. Moreover, the U.S. ban on Huawei is a bother. Inventory build-up at the Chinese tech-giant doesn’t bode well for its component suppliers, some of whom are customers of the Laser Systems and Components industry players.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Laser Systems and Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #34, which places it in the top 13% 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 solid 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.
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 Outperforms on Shareholder Returns
The Zacks Laser Systems and Components industry has outperformed the broader Zacks Computer and Technology sector as well as the Zacks S&P 500 composite over the past year.
The industry has returned 33.1% over this period compared with the S&P 500’s increase of 24.6% and the broader sector’s rise of 30.8%.
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 5.47X compared with the S&P 500’s 3.49X. It is also trading above the sector’s trailing 12-month P/S of 4.05X.
Over the last five years, the industry has traded as high as 3.65X, as low as 2.51X and at the median of 3.15X, as the chart below shows.
Trailing 12-Month Price-to-Sales (P/S) Ratio
Stocks to Watch
The Zacks Laser Systems and Components industry is expected to benefit from growing consumer need to enable faster and higher precision volume manufacturing techniques with lower power consumption despite a slowing China market and negative tariff impact.
CyberOptics (CYBE - Free Report) and Lumentum Holdings (LITE - Free Report) are a couple of stocks in the industry that investors may want to pick right now.
Minneapolis, MN-based CyberOptics sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The company is a leading provider of sensors and inspection systems that provide process yield and through-put improvement solutions for the global electronic assembly and semiconductor capital equipment markets.
The Zacks Consensus Estimate for its 2020 earnings has moved up 30% to 26 cents per share over the past 30 days.
Price & Consensus: CYBE
Milpitas, CA-based Lumentum Holdings (LITE - Free Report) offers optical and photonic products. The company has a Zacks Rank #2 (Buy).
The consensus mark for its fiscal 2020 earnings has climbed 1.5% to $4.89 per share over the past 30 days.
Price & Consensus: LITE