Raycus Laser’s third-quarter profit beat Goldman Sachs’ expectations. Why does it still have a Sell rating?

Third-quarter results beat expectations: Where was the strength?

In the third quarter of 2026, Raycus Laser reported revenue of 1.025 billion yuan and net profit of 98 million yuan, up 22% and 97% year on year, respectively, and 11% and 30% above Goldman Sachs’ forecasts. The results were consistent with the company’s earlier guidance; it was Goldman’s model forecasts that they exceeded.
Goldman attributed the beat to stronger revenue and operating leverage: earnings before interest and tax reached 92 million yuan, 29% above its forecast; operating margin was 9%, about 1 percentage point above expectations, as revenue growth produced a larger increase in profit.
A low base also contributed to the strong year-on-year growth, while quarter-on-quarter performance was weaker: revenue fell 2%, net profit fell 16%, and gross margin declined from about 27% in the second quarter to 25%, also about 2 percentage points below Goldman’s forecast. The year-on-year earnings recovery did not extend to a broad quarter-on-quarter improvement.

Management attributed the improvement in profitability since the first half of the year to an upgraded product mix: prices for F/U-series high-efficiency lasers in the ten-kilowatt class remained relatively firm, while sales of higher-value-added products for fields including new energy, shipbuilding, automotive and aerospace gradually increased, improving the sales mix.
Internal efficiency is also improving through component standardization, product streamlining and higher yields. Higher product value added and improved manufacturing efficiency together form the operational foundation for the profit recovery.
Industry competition is shifting from price-driven rivalry toward differentiation, market share is concentrating among leading companies, and the decline in average selling prices is narrowing. This means less pressure to cut prices, but sustained earnings improvement still depends on price competition in continuous-wave fiber lasers and the durability of demand from new high-value-added applications.

A breakthrough in the use of ultrafast lasers for through-glass via processes is helping the company expand into semiconductor applications. However, Guoshen, its subsidiary focused on ultrafast lasers, remains constrained by production capacity, and Goldman expects its factory relocation to be completed in the fourth quarter of 2026.
Goldman is optimistic about technologies such as ultrafast lasers, laser welding and cleaning, as well as new applications such as defense, but expects these new businesses to make a limited contribution to earnings in the near term; there is a time lag between expanding technology applications and scaling up profits.
The traditional business also faces limits to growth. Goldman expects China’s fiber laser market to grow at a compound annual rate of 7% from 2026 to 2030, with high-power applications growing faster; it estimates that Raycus’ domestic share had already reached 23% in 2025. The remaining opportunities to replace imports mainly involve IPG’s high-end customers, where unit prices are high and corresponding sales volumes are limited, constraining room for further share gains.

Following the stronger-than-expected third-quarter results, Goldman raised its earnings-per-share forecasts for 2026–2030 by an average of about 3% and lifted its 12-month target price from 16.7 yuan to 17.5 yuan. Its valuation method remains a price-to-earnings multiple of 25 times expected earnings for 2027.
The rating turns on the relationship between price and growth. Goldman forecasts compound annual earnings growth of 23% for 2026–2030 but still considers the current valuation high; its 17.5 yuan target price is 58.9% below the 22 October closing price of 42.58 yuan, so it maintains its Sell rating.
Factors that could make Goldman more optimistic include faster-than-expected progress in overseas expansion or defense business, and less-than-expected price pressure. These variables affect growth potential and the sustainability of the earnings recovery, respectively.