Personal Finance

Why II-VI Inc. Stock Popped 8%

Red laser light

What happened

Shares of laser-maker II-VI Inc. (NASDAQ: IIVI) surged 8.2% on Friday after the stock received a positive mention in a Morgan Stanley note describing investment opportunities "in the optical space." This capped a week that saw II-VI add 9.6% to its market capitalization.

So what

Citing "strong" secular tailwinds from such technologies as facial recognition, optical networking, and industrial lasers, Morgan Stanley named II-VI -- pronounced "two-six" -- its top pick in this subindustry. The analyst initiated coverage of II-VI with an overweight rating and a $46 price target, reports .

II-VI boasts a diversified customer base and differentiated processes that should enable it to generate more consistent earnings growth than its laser-making peers. In that regard, S&P Global Market Intelligence shows analysts, on average, predicting that II-VI will grow its sales at roughly 13.6% annually over the next five years.

Red laser light

Investors took a shine to II-VI stock on Friday -- and for good reason. Image source: Getty Images.

Now what

Here's the really good part: Morgan Stanley, in particular, argues that "volume and yield improvement" should enable II-VI to grow its profit 50% to 100% faster than that 13.6% sales-growth rate -- implying a profit growth rate of as much as 27% annualized.

That's not just better than II-VI's peers are expected to do -- it's potential earnings growth that's nearly twice as fast as the 15% rate that the rest of Wall Street predicts II-VI will achieve. No wonder investors took such a shine to this laser maker on Friday.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends II-VI. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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