Since reporting Q2 results in August, shares of Applied Optoelectronics (NASDAQ: AAOI) fell sharply lower, first trending at $40 but then breaking below $40 on the week of December 11. When Q3 results beat expectations, the stock popped higher, only to give up all the gains. Hope is not lost. Insider buying suggests the company’s prospects are set to improve.
Insider Alan Moore, a director at AAOI, bought over 22,000 shares totaling around $1 million. In June 2016, he bought 105,000 shares at $10.07. If his timing is right, AAOI stock could start recovering. But until the optical telecom market improves, the stock could be at risk of trending lower in the $30’s.
Last month, fiber-optic supplier Macom Technology Solutions (NASDAQ: MTSI) reported weak Q4 earnings. If it turns out the orders for lasers pick up this month and accelerates in January, that implies AAOI would rebound, too.
Q3’s gross margin improvement in 44.3% followed with the company forecasting that figure to fall to 41-43%. Non-GAAP EPS will come in below the $0.96 consensus, at $0.82 to $0.96 a share. At a P/E below 10 times, AAOI stock is very attractive.
MTSI stock’s forward P/E is 12.6 times, compared to 10.4 times with AAOI. It’s worth noting that Ciena’s (NYSE: CIEN) P/E is double the former two, at 23 times.
The bottom line is that despite a slower EPS growth forecast for Ciena stock, Applied Opto’s valuations are considerably low. It’s time that AAOI stock go up from here.
