Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!
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 – II-VI Incorporated. Looking at its size, financial health and track record, I believe there’s an opportunity with II-VI during these volatile times.
II-VI Incorporated develops, manufactures, and markets engineered materials, and optoelectronic components and devices worldwide. Founded in 1971, and run by CEO Vincent Mattera, the company employs 11.44k people and has a market cap of US$2.6b, 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.
Currently II-VI has US$505m on its balance sheet, which requires regular interest payments. This requires the business to have enough cash to meet these upcoming interest expenses. With an interest coverage ratio of 7.66x, II-VI produces sufficient earnings (EBIT) to cover its interest payments. Anything above 3x is considered safe practice. Moreover, its operating cash flows amply covers its total debt by 38%, which is higher than the bare minimum requirement of 20%. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning IIVI’s financial strength will continue to let it thrive in a fickle market.
IIVI’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 17%, beating the industry growth rate of 7.3%. This consistent market outperformance illustrates a robust track record of delivering strong returns over a number of years, increasing my conviction in II-VI as an investment over the long run.
Next Steps:Whether you’re convinced or not, the key takeaway here is that every stock gets hit in a bear market, but not every stock deserves the blow. When prices are dropping like flies, now is the time to do your research and buy at a discount. II-VI tick the boxes in terms of its scale, financial health and proven track record, but there are a few other things I have yet to consider. Below I’ve compiled a list of factors for you to continue your reading before you buy:
- Future Outlook: What are well-informed industry analysts predicting for IIVI’s future growth? Take a look at our free research report of analyst consensus for IIVI’s outlook.
- Valuation: What is IIVI 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 IIVI 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.
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 firstname.lastname@example.org. 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.