About Coherent
Lions, tigers, lasers oh my.
Full disclosure, I basically know nothing about the scientific, mathematical properties of lasers or light in general, but I know enough to say that, hot dog, Coherent is a pretty cool company and it sure has its foot in a lot of different use case camps.
Headquartered in Saxonburg, Pennsylvania and founded in 1966 by physicist James Hobart, Coherent Corporation is in the business of designing, manufacturing and selling industrial lasers, which, believe it or not, probably have way more applications across a wide array of industries and complexes than one might’ve initially thought.
A few industries and applications of Coherent’s products include industrial materials processing (think welding, drilling, etc..), scientific research (think visual aids in this arena such as specialized machines and tools that allow researchers to better view and analyze incredibly small items such as particles, bacteria etc..), lasers used in the context of multipurpose sensors, as well as LASIK eye surgery procedures, along with other specific medical procedures.
From continuous wave and mid-infrared to ultraviolet and near-infrared, Coherent does it all.
Let’s just act like I know what I’m talking about, alright?
I think one of the most initially fascinating things one could spend all day pondering is the fact that the aforementioned applications and industries are incredibly broad, as anything from a university’s molecular biology research department to a government contractor engaged in selling weapons to regimes all across the globe, there’s a rather high likelihood that in some way or another, lasers were involved somewhere down the line in the manufacturing process(es) and being the behemoth in the space that it is, Coherent was probably involved, not to mention the potential of its business growing as a result of the recent artificial intelligence renaissance that we surely are still living in today, as the semiconductor industry alone might just be riddled with beaucoup opportunities for a company such as Coherent.
I also think there’s something to be said about the more defined promise within the biotechnology sector, which has continued growing at hockey stick-like rates as it relates to Coherent, simply being that as more and more diseases and viruses rear their ugly heads in this world, more solutions will be needed and a company like Coherent already has a proven track record for its work within the research and development (R&D) nook of biotech.
Coherent is plenty interesting, no doubt about it, but I want to drift a bit closer to my usual comfort zone and dive into this company’s core financials and other relevant metrics and figures so I can see if me and billion-dollar hedge fund manager Mr. Stanley Druckenmiller, who in his most recently filed 13F reported a brand new stake in the company, weighing in at 4.11% of his firm’s entire holdings, are on the same page.
Coherent’s stock financials
Coherent, according to its market capitalization at the time of this writing is an $8.87 billion company with an accompanied share price of $58.19, all while also bearing the traits of no regularly issued annual dividend offered to its shareholder base at the moment as well as having no price-to-earnings (P/E) ratio on display either.
Is this a good or bad start, one might be inclined to ask.
The truth is I don’t really know yet, as this doesn’t really help me out all that much, except in that it doesn’t seem as though Coherent is profitable at the moment, on the account that it doesn’t have a readily available price-to-earnings ratio (that is, no earnings to display strongly implies that it doesn’t have earnings to begin with, as elementary as that does sound), but I will for sure verify whether or not this is actually the case later on within this stock analysis article.
Additionally, this company being absent of an annually distributed dividend could also be a more slight yet solid hint that Coherent Corporation isn’t net profitable, as perhaps it cannot afford to pay out a dividend to its shareholders right now, which would most certainly be the case if it cannot turn a large enough net profit.
This all initially checks out, but let’s stay laser focused.
Am I right?
Moving right along to the company’s balance sheet, Coherent’s executives are responsible for approximately $13.7 billion in terms of total assets along with almost $6.5 billion in terms of total liabilities, with its total assets sitting quite pretty above its cumulative liabilities at a slightly higher 2:1 ratio, meaning that if all heck broke loose (yeah, I said what I said), this company would still have a little more than twice the amount of total assets than liabilities, adequately covering itself double-fold, and while Coherent will more than likely never find itself in this dire of a situation, it is also good to find that the photon company has afforded itself the luxury to grow through more debt financing while also still remaining in a healthy financial condition.
As it relates to the company’s income statement, Coherent’s recent revenue figures between and during 2019 and 2023 have touted some impressive growth, expanding each year during this five-year period, starting off at a relative base of $1.3 billion in 2019, increasing each subsequent year to its latest reported annualized revenue figure of $5.1 billion, as reported in 2023, and I don’t think I am the first one to say that almost quintupling one’s annual revenues, that is, when already operating off of a rather substantial revenue base isn’t exactly trivial, but seriously impressive, hinting at the fact that there’s been a great deal of continual, heightened demand for Coherent’s products and services, also letting me know that, at least in recent history, the company has a knack for performing well even during inflationary periods and/or periods of general economic turmoil or distress.
There are worse problems to have.
This makes some sense being that the core offerings of Coherent aren’t tied too closely to periods of economic boom or bust, a rather myopic (notice the word choice here) yet real example of this being that if people want laser eye surgery, they are likely going to pay for it, as it is an expensive procedure but those who want it to begin with are typically price inelastic and thus are more likely to afford and pay for it regardless of the state of the economy, another example being a bit more simple in that researchers at universities and within other professional lab settings will continue performing research (generally) irrespective of the prevailing economic landscape, and some company has to provide the lasers.
Onto the company’s cash flow statement, Coherent’s total cash from operations (also as measured during and between 2019 and 2023) have sang a tune trajectorial to that of its aforementioned revenues, also climbing nearly every single year, thankfully being positive (albeit still not being a very large portion of its revenues, further confirming that Coherent’s profit-ability is indeed muted at the moment), ranging between a low of $178 million (2019) and $634 million (2023), again, essentially quintupling during this time period.
Coherent’s stock fundamentals
Now, in learning more about Coherent’s exact net profitability and where it stands within the confines of the competition, I found the company’s net profit margin listed as -6.31% (as displayed on Charles Schwab’s platform) whereas the competition’s net profit margins are somewhat close but in still objectively far better positions, primarily in that they are in slightly positive territory, with, for example, Arrow Electronics showing a net margin of 2.29%.
Honestly, while I would obviously prefer Coherent to have a better and positive net profit margin, the fact of the matter is that it is growing at a really strong rate, and profitability is going to almost always have to be periodically sacrificed in order to continue churning the growth machine, therefore, so long as the growth continues and at some point when this company inevitably begins stabilizing its revenues, margins must balance out and enter into positive territory.
Of course, time will tell, but given everything that I’ve seen so far, this company is indeed capable of being net profitable.
On the basis of return on equity (ROE), Coherent’s figure is both negative and comparably unimpressive once again, however, being that restructuring can be a primary reason in which a company reports a negative return on equity and Coherent just so happens to be engaged in a restructuring (reportedly during and following 2023), and candidly, unless it is way out of whack, I largely prioritize net profitability and the other aforementioned financial statements and metrics more than ROE, and I especially stand on this given the added context of the company’s restructuring.
Should you buy Coherent stock?
Lasers and the applications and relevant sectors thereof are apparently resistant to recessionary and general inflationary pressures, as evidenced through the company’s stellar and growing recent annual revenues and total cash flows from its operations, and while its profitability has been fairly muted, I relish in the fact that the company and its management team have been proactively working on putting together and executing a sort of restructuring plan that will likely better streamline its operations and thus, its intermediate and long-term profitability.
Again, however, I am also just willing to sacrifice some short-term net profitability for the sake of continued growth, and boy is Coherent Corporation growing.
Putting all of the pieces of the puzzle together, I feel comfortable in offering this company’s stock (NYSE: COHR) a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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