Why IPG Photonics Stock Just Crashed
Key Points
IPG Photonics beat on earnings this morning, but investors are selling it anyway.
IPG's guidance suggests Q1's beat will turn into Q2's miss.
Laser company IPG Photonics (NASDAQ: IPGP) stock got blasted for a 24.8% loss through 11:45 a.m. ET Tuesday morning despite beating on in its Q1 earnings report.
Heading into the report, analysts forecast IPG to earn $0.27 per share (pro forma) on $256.5 million in sales. In fact, IPG earned $0.29 per share on $265.5 million in sales.
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IPG Photonics Q1 earnings
Not all the news was good.
IPG grew sales an impressive 17% year over year, but profitability declined due to tariff costs. Gross profit margin dropped nearly two percentage points to 37.5%, pushing IPG into an operating loss. Interest on savings and "other" income helped even things out, but IPG's GAAP net profit of $0.04 per share was a whole lot less than the $0.29 per share pro forma profit noted above.
It was also more than 50% less than last year's Q1 profit.
What's next for IPG Photonics stock?
Turning to guidance, IPO highlighted a book-to-bill ratio 1.0, indicating "robust demand for our solutions" and suggesting further sales growth ahead. In Q2, management forecasts sales between $260 million and $290 million, some improvement in gross margin on those sales, and pro forma profit between $0.25 to $0.55.
The bad news? While IPG's sales target looks fine and in line with analyst expectations, Wall Street was hoping IPG would promise $0.43 per share in profit -- and the midpoint of a range stretching from $0.25 to $0.55 is only $0.40 per share.
It's likely to be a small Q2 miss, but it's still a bigger miss than the Q1 beat. For a stock trading for 167 times earnings, it's too big for investors to forgive -- and that's why they're selling IPG Photonics stock today.
Should you buy stock in IPG Photonics right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends IPG Photonics. The Motley Fool has a disclosure policy.
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