The roughly 20% in weekly gains in shares of Applied Optoelectronics (NASDAQ: AAOI) came after investors panic-sold the stock ahead of the earnings report. Then AAOI stock jumped when the company exceeded expectations.
The company reported a Q3 EPS of $1.08 a share on revenue of $88.88 million. Though the Y/Y revenue growth of 26.7% would not justify high valuation multiples for AAOI stock, the drop is due to its loss in a single customer. Overall growth is falling as a result while profitability is improving.
The optical networking industry is in a downtrend at the moment, which would amplify any strategic decision mistakes from management for the worst. AAOI management failed to anticipate the weaker quarter earlier and has yet to give a forecast. Short-term traders of either the buying or selling types for the stock will have a hard time making profits.
Applied Optoelectronics’ is not yet out of the woods even though the stock rallied. So for investors with a longer-term time frame, chances are good that the stock will do well as the uncertainties clear for this sector and the company builds a bigger list of customers in the quarters ahead.
