US Expansion And R&D Pipeline Will Build Future Opportunity

Key Takeaways

• Geographical expansion and a focus on mature R&D projects are key drivers of future revenue growth and increased demand, especially in the U.S.
  
• New patent protections and a shift to a service-based model in high-value applications could enhance competitive advantage and long-term earnings stability.
  
• Delays, geopolitical risks, and business model transition challenges affect Modulight's revenue predictability, production efficiency, and pose potential risks to future growth and margins.

Catalysts

Designs, manufactures, and markets lasers products for medical and other diagnostic applications.

• Modulight's R&D pipeline has increased from 28 to 31 projects with a focus on mature projects, which is expected to drive future revenue growth as these projects progress to commercialization.
  
• Geographical expansion, particularly in the U.S., is creating increased order intake and is expected to continue driving revenue growth, as U.S. customers' international operations generate more demand.
  
• Completion of the investment program has led to a decrease in costs by 15% in Q1 2025, improving profitability as indicated by the rise in EBITDA, and will likely enhance future net margins.
  
• New patent protection for the Modulight Cloud and advancements in photo immunotherapy could position the company favorably in the cancer treatment market, potentially expanding revenue opportunities and enhancing competitive advantage.
  
• The transition to a service-based PPT model and recurring production agreements, particularly in high-margin, high-value-add laser applications, such as quantum computing, are expected to create stable and improved earnings in the long term.

Modulight Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Modulight Oyj's revenue will grow by 31.0% annually over the next 3 years.
• Analysts are not forecasting that Modulight Oyj will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Modulight Oyj's profit margin will increase from -76.4% to the average FI Medical Equipment industry of 17.1% in 3 years.
• If Modulight Oyj's profit margin were to converge on the industry average, you could expect earnings to reach €3.1 million (and earnings per share of €0.09) by about May 2028, up from €-6.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.3x on those 2028 earnings, up from -9.3x today. This future PE is lower than the current PE for the FI Medical Equipment industry at 27.6x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.3%, as per the Simply Wall St company report.

Modulight Oyj Future Earnings Per Share Growth

Risks

• Delays in regulatory approval and operational issues with third-party partners have negatively impacted revenue development, suggesting potential future risks regarding predictability in earnings.
  
• Modulight's transition to the PPT business model has slowed down revenue growth, indicating possible risks to achieving consistent revenue gains and affecting net margins.
  
• The lack of guidance on future outlook due to many customer projects being at an early stage raises concerns about revenue predictability and future earnings growth.
  
• Prototype delivery delays signal potential risks in production efficiency and revenue recognition timelines, impacting revenue flow and gross margins.
  
• Uncertainty surrounding geopolitical factors and tariffs, although currently not affecting Modulight, present a future risk that could impact operational costs and sales revenue.

Valuation

• The analysts have a consensus price target of €1.85 for Modulight Oyj based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €2.2, and the most bearish reporting a price target of just €1.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €18.2 million, earnings will come to €3.1 million, and it would be trading on a PE ratio of 24.3x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of €1.36, the analyst price target of €1.85 is 26.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.