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Byline: Peter Cohan

O xford’s IPG Photonics has had an impressive year in the stock market. Does it still have a bright future?

Before getting into the details of its stock performance and prospects, the fiber laser maker issued a press release on Feb. 9 that suggested a 25 percent increase in its fourth quarter sales.

That is an impressive revenue rise. According to the press release, For the fourth quarter, IPG expects to report revenues of approximately $207 million compared with the previously guided range of $190 million to $205 million.»

Depending on which end of the range you pick, IPG appears to have exceeded the expectations that it set for investors by 24 percent. IPG noted that it is likely to report earnings per diluted share in the range of $1.06 to $1.07, including a benefit of $0.03 from foreign exchange, compared with previous guidance of between $0.86 and $1.01 per diluted share.»

Dr. Valentin Gapontsev, IPG’s chief executive officer, sounds effusive about the results.

We expect to report another record year of revenues and earnings,» he said. Our approximately 25 percent year-over-year increase in fourth quarter revenues was primarily driven by the continued strong performance of materials processing and advanced applications. Geographically, we performed well in Asia, North America and Western Europe. In terms of products, growth was primarily driven by high power and medium power lasers and to a lesser extent QCW and pulsed lasers.»

IPG shares rose an impressive 26 percent in the year ending Feb. 19 — significantly better than the NASDAQ’s 16 percent increase during that stretch. And after its Feb. 9 announcement, the shares tacked on 3 percent.

But where will they go from here?

Since that announcement, analysts who follow IPG have been mostly upbeat on its prospects, with an average rating of Buy» and an average price target of $86.84. One equities research analyst has rated the stock with a hold rating, and five have issued a buy rating on its shares.

One of the more bullish analysts is Needham & Company, which set a $98.00 price target on IPG’s shares.

Needham’s James Ricchiuti said that the February 9 fourth quarter pre-announcement suggests solid upside to 2015.»

Mr. Ricchiuti is optimistic about IPG’s future through 2016.

Consistent with what have been generally positive quarterly reports from a number of publicly traded laser and photonics companies, on (Feb. 9, IPG) pre-announced stronger than expected fourth quarter results ahead of the Photonics West Show in San Francisco,» he wrote.

He continued, Management said fourth revenues increased about 25 percent, compared to the previous year, above the high end of prior guidance of 15 percent to 24 percent top-line growth and the strongest growth in over three years. For the year as a whole, IPG increased revenues 19 percent, which is well above the low-to-mid teens growth that the fiber laser industry was believed to have grown in 2014.»

Mr. Ricchiuti concluded that IPG shares should rise.

IPG shares, which had traded higher into today’s pre-announcement, have further appreciation potential, in our view, based on solid upside to our current 2015 estimates and looking out to the company’s earnings power in 2016,» he wrote.

Needham raised its estimates of IPG’s 2014 earnings per share (EPS) from $3.68 to $3.80, and maintained its estimate of IPG’s 2015 EPS at $4.15.

Not all analysts are so bullish, though. On December 2, Zacks downgraded shares of IPG Photonics from an outperform» rating to a neutral» rating, and set a $79.20 price target on the stock.

I fall more in the good news and bad news camp on IPG. The good news is that IPG seems to be gaining market share — given that its revenues have been growing faster than the industry. That growth is likely due to a product line that customers prefer to those being sold by rivals.

While IPG is offering investors significant growth potential, that growth is coming at too high a price.

I base that conclusion on its Price/Earnings to Growth (PEG) ratio. If it’s less than 1, the shares are reasonably priced in relation to that growth potential. Otherwise, the shares look expensive.

IPG’s PEG is an expensive 1.9 — it trades at a Price/Earnings ratio of 24 and its earnings are expected to rise at a 13 percent rate in 2015 from $3.76 in 2014 to $4.25 in 2015, according to Zacks.

If you buy IPG stock now, it only makes sense if you think that the consensus forecast for its earnings growth will turn out to be way too low.

It may make sense to see whether its price drops to the point where you can own a piece of IPG’s growth at a more reasonable price.

Peter Cohan of Marlboro heads a management consulting and venture capital firm and teaches business strategy and entrepreneurship at Babson College. His email address is peter@petercohan.com.