Analysts Attack Applied Optoelectronics (AAOI)

An analyst downgrade on shares of Applied Optoelectronics (NASDAQ: AAOI) sent the stock lower by nearly 8% in the week of January 8. Set to report quarterly earnings after market close on Feb. 6, the firm issued no warnings that would justify the downgrade. At a P/E of 8.6 times and a PEG of 0.48 times, value investors must figure out if earnings this year are as bad as markets expect.

Rozenblatt’s Jun Zhang wrote a negative note on AAOI stock, citing two of its biggest customers may move its business to a competitor. A loss of business from Facebook (NASDAQ: FB) and Amazon.com (NASDAQ: AMZN) is a setback as the company resets its business. Yet Applied Opto is investing to expand its capacity, so the customer loss speculation does not make much sense.

Further, a loss in 5G business points only to the telecom customer, which is less than 5% of AAOI’s total revenue. AAOI’s growth ambitions in China should lead to contract wins in the region. So at a share price below $40/share, the stock could reward patient shareholders if quarterly earnings show business is stabilizing and growth will return in the quarter that follows.