nLIGHT Trades at Premium Valuation: Buy, Sell or Hold the Stock?

nLIGHT LASR is currently trading at a high price-to-sales (P/S) multiple, far above the Zacks Electronics – Semiconductors industry. nLIGHT’s forward 12-month P/S ratio sits at 11.54X, significantly higher than the industry’s forward 12-month P/S ratio of 7.18X. The Zacks Value Score of F also suggests that LASR stock is overvalued.

nLIGHT stock also trades at a higher P/S multiple compared with other industry peers, including FormFactor FORM, Lam Research LRCX and Applied Materials AMAT. At present, FormFactor, Lam Research and Applied Materials have P/S multiples of 8.66X, 10.46X and 8.22X, respectively.

Forward 12-Month P/S Ratio

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nLIGHT’s elevated valuation raises concerns about whether the stock can justify such lofty multiples. Considering the premium valuation, investors must be wondering whether they should buy, hold or sell the stock, especially amid near-term challenges.

Exit From Cutting and Welding to Hurt LASR’s Prospects

A key risk that weighs on nLIGHT’s prospects is the company’s decision to exit the cutting and welding business, which will create a clear revenue headwind in 2026. Management said this move is expected to reduce full-year revenues by around $25 million to $30 million. The company has already informed customers and is now working through last-time buys and other wind-down actions. Some revenues from this business will continue in the first half of 2026, but management said it should be close to zero by the second half of the year.

This exit is part of a broader effort to improve focus and move resources toward better opportunities such as directed energy, laser sensing and additive manufacturing. Strategically, that makes sense because cutting and welding have been facing weak demand and are no longer as attractive as the company’s core growth areas. However, even if the decision is right from a long-term perspective, it still creates a short-term gap in the company’s revenue base.

Further, exit from the cutting and welding business means that the company is losing a business that had a positive contribution margin. Cutting and welding were still contributing profit on incremental sales, so removing those revenues creates some near-term margin pressure. This impact was already visible in fourth-quarter results. As a percentage of revenues, nLIGHT's product gross margin declined sequentially to 37.3% in the fourth quarter, down from 41.0% in the prior quarter.

This reflects a sequential decline of 370 basis points, which was primarily due to higher inventory charges, along with lower factory utilization and a less favorable mix, related to the exit of cutting and welding. Further, for the first quarter of 2026, LASR expects product gross margins to be around 36.5% at the midpoint. This reflects another sequential decline in the company's Product gross margins and indicates that the margins will remain under pressure in the near term.

The Zacks Consensus Estimate for nLIGHT’s 2026 and 2027 earnings per share is pegged at 35 cents and 56 cents, respectively. Estimates for 2026 and 2027 have been revised downward by 3 cents and 6 cents over the past 30 days, respectively.

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The above-mentioned factors seem to have weighed on investors’ sentiments as reflected in a decline in LASR’s share price over the past month. LASR stock has declined 1.5% over the past month, underperforming its industry peers, including FormFactor, Lam Research and Applied Materials. Over the past month, shares of FormFactor, Lam Research and Applied Materials have returned 15.8%, 3.4% and 2.8%, respectively.

One-Month Price Return Performance

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LASR Suffers From Weakness in Microfabrication

Management said that microfabrication is the part of the business where nLIGHT has the least visibility. This means the company does not have a clear line of sight on how much this segment can grow in the near term. In 2026, management expects revenues from the microfabrication segment to be flat or slightly down on a year-over-year basis.

A key issue that the management pointed out here is that revenues from China have gone down sharply in the microfabrication segment and are no longer a meaningful part of the business. Here, China used to be a major source of demand, and losing that contribution makes it harder for microfabrication to grow. These factors show that the microfabrication business is not a reliable growth driver right now and cannot meaningfully support the company's overall growth.

Conclusion: Sell LASR Stock Right Now

While nLIGHT is trading at a premium valuation, its near-term business challenges do not fully support such lofty multiples. The company is exiting its cutting and welding business, which will create a revenue headwind in 2026 and also pressure margins in the near term, creating a clear gap in both sales and profitability over the next few quarters.

Weakness in microfabrication, where nLIGHT has low visibility, is expected to be flat to slightly down in 2026. The sharp decline in China-related demand also limits recovery potential in this segment. The company’s near-term challenges, along with its premium valuation, make the stock look unattractive at current levels, and investors should consider staying away from the stock at present.

Currently, nLIGHT carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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