The optical networking market is out of favor in the stock market for good reason. Demand is very weak, after several quarters of explosive growth. The pause is scaring away momentum investors, who no longer believe stocks in it deserve a high multiple. Two stocks are on watch after a big tumble on the week of Feb. 19 – 23.
Acacia Communications (NASDAQ: ACIA) fell 11% on Feb 23 when analysts downgraded the stock. The company reported a 39% drop in revenue. The company also issued a weak first-quarter guidance. The CEO said it still faced headwinds in the market. Income from operations was $9.2 million while net income was $11.1 million.
In Q1, Acacia expects revenue of $67 million - $74 million, well-short of the $93.2 million consensus. EPS is a penny to $0.10 a share, compared to the $0.28 a share estimate.
Applied Optoelectronics (NASDAQ: AAOI) reported Q4 revenue declines. It earned $5.7 million in net income. For Q1, revenue in the range of $67 million - $71 million is below the $86.5-million consensus.
Cash totaled $84 million, up from $52 million. Its contract with Facebook (NASDAQ: FB) is encouraging but not enough to stop the selloff following the earnings report.
Takeaway
This is a risky sector but profitable for patient investors who can time a good entry point. In a few quarters, business will improve as demand for optical network solutions return.
