Coherent, Inc. (NASDAQ:COHR): Can Growth Justify Its March Share Price?

Coherent, Inc. (NASDAQ:COHR) closed yesterday at $140.25, which left some investors asking whether the high earnings potential can still be justified at this price. Below I will be talking through a basic metric which will help answer this question.

Check out our latest analysis for Coherent

What can we expect from Coherent in the future?

According to the analysts covering the company, the following few years should bring about good growth prospects for Coherent. The consensus forecast from 9 analysts is buoyant with earnings per share estimated to surge from current levels of $9.845 to $10.244 over the next three years. On average, this leads to a growth rate of 12% each year, which signals a market-beating outlook in the upcoming years.

Can COHR’s share price be justified by its earnings growth?

Stocks like Coherent, with a price-to-earnings (P/E) ratio of 14.25x, always catch the eye of investors on the hunt for a bargain. In isolation, this metric can be a bit too simplistic but in comparison to benchmarks, it tells us that COHR is undervalued relative to the current US market average of 17.58x , and undervalued based on its latest annual earnings update compared to the Electronic average of 19.59x .

NasdaqGS:COHR Price Estimation Relative to Market, March 16th 2019
NasdaqGS:COHR Price Estimation Relative to Market, March 16th 2019

Coherent’s price-to-earnings ratio stands at 14.25x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. However, to be able to properly assess the value of a high-growth stock such as Coherent, we must incorporate its earnings growth in our valuation. The PEG ratio is a great calculation to take account of growth in the stock’s valuation. A PE ratio of 14.25x and expected year-on-year earnings growth of 12% give Coherent a higher PEG ratio of 1.2x. So, when we include the growth factor in our analysis, Coherent appears slightly overvalued , based on fundamental analysis.

What this means for you:

COHR’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Financial Health: Are COHR’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has COHR been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of COHR’s historicals for more clarity.
  3. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.