By George Leong, B.Comm. Published : May 4, 2021
LASR Stock Could Surge as Chip Sector Comes Back
The world is currently facing a significant shortage in semiconductor chips across nearly all segments, from low to advanced technology.
But the situation will improve as companies ramp up their chip foundries, a move that could benefit nLIGHT Inc (NASDAQ:LASR). The company is a developer of advanced lasers used in semiconductor, industrial, and optical fiber applications. The lasers help chipmakers develop better products.
nLIGHT stock debuted at $16.00 in April 2018, surging higher than $40.00 by July 2018, but the subsequent years have been indecisive.
LASR stock traded as low as $14.28 in May 2020, prior to staging a strong rally to a record $46.45 in February 2021.
But similar to its performance in the last few years, nLIGHT stock failed to gain any upside sustainability. It has declined to below $30.00 and below its key 50-day moving average, and it’s hovering around its 200-day moving average.
Chart courtesy of StockCharts.com
At its current price, I like the long-term prospects for LASR stock, especially given the expected strong growth in the chip industry and the company’s improving fundamentals.
Improving Fundamentals Bode Well for nLIGHT Stock
A look at nLIGHT Inc’s five-year revenue picture shows the company more than doubling its revenues from 2016 to a record in 2020. The compound annual growth rate (CAGR) in that period was an impressive 21.8%.
The company’s revenues grew in the strong double-digits in three of the last four years, including in 2020, during the pandemic.
Fiscal Year | Revenues (Millions) | Growth |
2016 | $101.3 | N/A |
2017 | $138.6 | 36.8% |
2018 | $191.4 | 38.1% |
2019 | $176.6 | -7.7% |
2020 | $232.8 | 26.1% |
(Source: “nLIGHT Inc.,” MarketWatch, last accessed April 30, 2021.)
The company’s outlook looks positive for the next two years. nLIGHT is expected to increase its revenues by 20.1% to $267.5 million this year and by 15.9% to $309.9 million in 2022. (Source: “nLIGHT, Inc. (LASR),” Yahoo! Finance, last accessed April 30, 2021.)
The company produced earnings before interest, taxes, depreciation, and amortization (EBITDA) income in three of the last four years.
Fiscal Year | EBITDA | Growth |
2016 | -$1.2 Million | N/A |
2017 | $17.7 Million | 1,530% |
2018 | $25.4 Million | 43.1% |
2019 | $155,000 | -99.4% |
2020 | -$4.4 Million | -2,904.5% |
(Source: MarketWatch, op. cit.)
nLIGHT Inc hasn’t been able to deliver consistent profits based on generally accepted accounting principles (GAAP) earnings per share (EPS).
Fiscal Year | GAAP Diluted EPS | Growth |
2016 | -$0.42 | N/A |
2017 | $0.00 | 100.0% |
2018 | $0.32 | 3,200% |
2019 | -$0.35 | -209.2% |
2020 | -$0.55 | -57.2% |
(Source: MarketWatch, op. cit.)
On an adjusted basis, nLIGHT has managed to produce profits, and the estimates have been on the rise.
The company reported an adjusted $0.17 per diluted share in 2020. The consensus estimate calls for nLIGHT Inc to ramp this up to $0.41 in 2021. For 2022, LASR is expected to report $0.68 per diluted share. (Source: Yahoo! Finance, op. cit.)
The company’s earnings in 2020 showed four quarters straight of beats, ranging from 50% in the first quarter to 1,100% in the third quarter.
nLIGHT Inc reported positive free cash flow (FCF) in 2016 before reporting four consecutive years of negative FCF. Watch for this to improve.
Fiscal Year | FCF (Millions) | Growth |
2016 | $1.9 | N/A |
2017 | -$2.1 | -209.3% |
2018 | -$8.4 | -304.4% |
2019 | -$17.9 | -113.3% |
2020 | -$7.6 | 57.7% |
(Source: MarketWatch, op. cit.)
Meanwhile, nLIGHT Inc’s balance sheet is strong, with $102.3 million in cash and $13.1 million in debt. This will allow time for nLIGHT to execute its strategy. (Source: Yahoo! Finance, op. cit.)
Analyst Take
Institutions and insiders have been buying LASR stock, which is a good sign. About 219 institutions hold an 87.3% stake in the outstanding shares. Moreover, insiders added a net 170,586 shares of nLIGHT stock over the last six months. (Source: Yahoo! Finance, op. cit.)
Given its current share-price weakness, nLIGHT Inc could eventually take off as more companies ramp up chip production.
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