Everyone is selling, the charts are red, but should you panic? Not at all. As a long term investor, my favorite time of the economic cycle is when great stocks sell at an unjustified discount. Today I want to bring to light the market’s darling – Coherent, Inc.. Looking at its size, financial health and track record, I believe there’s an opportunity with Coherent during these volatile times.
Coherent, Inc. provides lasers, laser-based technologies, and laser-based system solutions for a range of scientific, commercial, and industrial applications. Formed in 1966, and led by CEO John Ambroseo, the company now has 5.42k employees and has a market cap of US$2.7b, putting it in the mid-cap stocks category. Generally, large-cap stocks are well-resourced and well-established meaning that a bear market will cause it to rejig some short-term capital allocations, but stock market volatility is hardly detrimental to its financial health and business operations. Therefore large-cap stocks are a safe bet to buy more of when the wider market is going down and down.
Coherent currently has US$426m debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. Coherent generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 16.25x, which is well-above the minimum requirement of 3x. Furthermore, its operating cash flows amply covers its total debt by 55%, which is higher than the bare minimum requirement of 20%. Its cash and short-term investment is also sufficient to cover other upcoming liabilities, which means COHR is financially robust in the face of a volatile market.
COHR’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 34%, beating the industry growth rate of 8.1%. It has also returned an ROE of 19% recently, above the industry return of 9.5%. This continuous market outperformance demonstrates a strong track record of delivering robust returns over many years, raising my confidence in Coherent as a long-term hold.
Next Steps:Coherent makes for a robust long-term investment based on its scale, financial health and track record. Remember, in bear markets, sell-offs can be unjustified. Ask yourself, has anything really changed with Coherent? If not, then why not scoop it up at a discount? Lining your portfolio with a few well-established companies can reduce your risk and help you scale your wealth in the long run. One thing you should remember though, is to do your homework. Do your own research, come up with your point of view. Below is a list I’ve put together of other things you should consider before you buy:
- Future Outlook: What are well-informed industry analysts predicting for COHR’s future growth? Take a look at our free research report of analyst consensus for COHR’s outlook.
- Valuation: What is COHR worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether COHR is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.