Does Coherent’s Expanded Silicon Carbide Production Signal Room for Further Growth in 2025?

Thinking about what to do with Coherent stock right now? You are not alone. After another dynamic year, many investors are weighing whether the current price still offers true value or if recent gains mean it is time to lock in profits. The last twelve months have seen Coherent climb 17.9%, far outpacing the broader market. The three-year return sits at a remarkable 238.5%. Even in the last week, the stock bumped up 4.5%, showing that momentum and interest remain strong. However, the 30-day return is a more muted 0.7% as traders digest the latest news about laser component demand and industry partnerships.

Recent announcements around expanded silicon carbide production and new contract wins have kept Coherent in the spotlight. Many see potential for longer-term growth as the company pivots toward high-growth sectors such as electric vehicles and advanced manufacturing. These developments have shifted perceptions of risk and reward. This helps explain the steady year-to-date performance of 14.7% and contributes to the sense that something meaningful could be brewing for the stock.

But how much is too much to pay for this kind of growth? Valuation is the next piece of the puzzle. Coherent's current value score is 3 out of a possible 6, suggesting the company is undervalued in half the metrics most investors care about. Next, we will break down those valuation approaches and see where Coherent stands. At the end, do not miss a perspective on valuation that could give you a real edge.

Why Coherent is lagging behind its peers

Approach 1: Coherent Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates the true value of a company by projecting its future cash flows and discounting them back to today's value. This approach attempts to answer the question, "What is Coherent worth right now based on the cash it is expected to generate in the future?"

Currently, Coherent's trailing twelve months Free Cash Flow stands at $180.1 million. Analyst expectations and projections suggest significant growth ahead, with forecasted Free Cash Flow climbing to $876.5 million by 2028. Extrapolating further, Simply Wall St estimates FCF could reach over $1.7 billion by 2035. These robust projections reflect optimism regarding Coherent's capacity to scale in high-growth sectors such as advanced manufacturing and electric vehicles.

Based on these modeled cash flows, the estimated intrinsic value by the DCF approach is $129.41 per share. When compared to the present market price, this suggests Coherent is trading at a 10.8% discount, indicating notable undervaluation.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Coherent.

Our Discounted Cash Flow (DCF) analysis suggests Coherent is undervalued by 10.8%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Coherent Price vs Sales

Price-to-Sales (P/S) is a particularly useful metric when analyzing companies experiencing rapid growth or when profitability is volatile, as it focuses on revenue rather than earnings. For profitable and expanding businesses like Coherent, the P/S ratio provides a direct lens into how much investors are willing to pay for each dollar of sales, making it a suitable tool for valuation.

Growth expectations, profit margins, and risk factors all influence what is considered a "normal" or fair P/S ratio. Higher growth and lower risk often justify a higher multiple. Slower-growing or riskier companies typically warrant a lower one. Currently, Coherent trades at a P/S ratio of 3.12x, comfortably above the industry average of 2.87x but below the peer group average of 4.52x. This places Coherent in the middle of the pack, suggesting that the market recognizes its long-term potential while also considering possible risks and near-term uncertainty.

Simply Wall St's "Fair Ratio" provides a more tailored benchmark by considering not just sales, but also Coherent’s expected growth, profit margins, industry dynamics, market capitalization, and specific risks. This approach avoids the pitfalls of simple peer or industry comparisons and ensures the valuation context fits the company's unique fundamentals. For Coherent, the Fair Ratio stands at 3.16x. Since its actual P/S multiple of 3.12x is nearly identical, the stock appears fairly valued based on this important sales-based metric.

Result: ABOUT RIGHT

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Coherent Narrative

Earlier we mentioned there is an even better way to understand valuation, so let's introduce you to Narratives, a powerful and accessible approach to investing found on Simply Wall St's Community page and used by millions of investors worldwide.

In simple terms, a Narrative is your personal story about a company, built on your estimates of its future revenue, profit margins, and fair value, but grounded in the facts and catalysts you believe matter most. Narratives connect the company's business story to a forward-looking financial forecast, and then translate that forecast into an actionable fair value. This helps you clearly decide if a stock is under- or over-valued today.

What makes Narratives especially useful is how they’re updated dynamically as new news or earnings are released, so your perspective remains current without needing to start from scratch. On the Simply Wall St platform, Narratives let you and other investors see side-by-side how fair value compares to the latest market price, and whether your story aligns with or diverges from consensus thinking.

For example, with Coherent, one investor might see strong AI datacenter demand and new Apple contracts as reasons for a higher fair value of $135, while another may emphasize industry risks and assign a fair value as low as $85. This empowers users to make decisions driven by their own convictions and insights, not just the latest headlines.

Do you think there's more to the story for Coherent? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com