nLIGHT Inc: Laser Tech Play Is Ideal for the Upcoming Microchip Recovery

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.

(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.

(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).

(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.

(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.