Bull of the Day: Alliance Fiber Optic (AFOP) - Bull of the Day
September 23 2013 - 1:39AM
Zacks
Alliance Fiber Optic Products (AFOP) was profiled back on
August 2, and the stock is up 45% since then. The ride isn't over
for this fiber optic play and it is again the Bull of the Day as a
Zacks Rank #2 (Buy).
More Broadband Required
Back in July I wrote about my "Best Tech Stocks For 2nd Half of
2013" and I discussed the idea of more devices coming soon and how
they will create demand for more bandwidth. To satiate the demand
for that bandwidth, service providers are increasingly turning to
fiber optics.
Over the last few weeks companies that service the fiber optic
market have been on fire. Ciena (CIEN) recently beat
earnings and guided higher pushing its stock higher by 14% and
Finisar (FNSR) reported earnings which they had previously
revised guidance for, and then came out with another increase in
guidance.
Company Description
AFOP designs and manufactures components, modules, and
subsystems that empower dynamic optical network, and facilitates
the migration of fiber optics from the long haul through the last
mile. That is all industry jargon for they make a fiber optic
connection to your business or home a reality.
Earnings History
The most recent quarter was viewed by Wall Street as a beat of
two cents. Zacks has the quarter and the one before it as a
meet.
The main idea with a company the size of AFOP is to look at
revenue growth. Recently, the company increased its revenue
guidance for the next quarter from a range of $19M-$20M to more
than $22M. The chart below shows how expectations for revenue have
grown throughout this year.
Stock Split & More Shares
The company recently split its stock 2 for 1. Some investors
like when this happens as the stock appears to be "cheaper". Savvy
investors understand that the split is a mathematical equations
that does nothing to the valuation of the stock or the amount of
dollars invested in the stock before the spilt. The end result of a
split like this is that there are more shares, and thus the divisor
in the EPS equation requires more net income to move the needle in
a meaningful way.
The Company is holding a special shareholder meeting on October
21, 2013. The purpose of the Special Meeting is to consider and to
vote on three proposals. One of the proposals is to increase the
number of shares of authorized Common Stock from 20,000,000 to
100,000,000 shares. This move will cause some dilution to
shareholders, but it will also make the stock much more attractive
to the institutions that would make an investment, but are fearful
of the current concentration of shares. Right now, only 31% of the
stock is held by institutions and greater availability of shares
should serve to push that metric higher.
Earnings Estimates Adjusted
In March the Zacks Consensus Estimate for 2013 was calling for
$0.49. The number bumped up to $0.53 in April and was again raised
to $0.66 in May. Analysts went on vacation in June, as the
consensus didn't change, but they really kicked estimates higher
following earnings in July. The consensus now stands at $0.86. That
means earnings estimates have increased by 71% since March.
Estimates in the paragraph above were adjusted from the most
recent profile of AFOP as Bull of the Day due to the stock
split.
Valuation
Since the last time I profiled AFOP as the Bull of the Day, the
valuation has move higher. But when you consider that the stock
moved up by 45%, you have to expect the valuation metrics to move
higher. The forward PE moved from 18.6x to 26.6x while the industry
average has held still at roughly 20x the next twelve months
earnings. Price to sales also jumped from 5x to 7.4x and again the
industry average has held still. For the most part, the valuation
story is moving higher, but it’s not out of control expense at this
point.
The Chart
The price and consensus chart for AFOP shows how the earnings
movements have helped push the stock higher. The chart has not
updated the prior estimates to reflect the recent stock split. So
for the chart I thought I would show where it was when I last
profiled the stock. You can see from this Google chart that the
stock has performed quite well. I expect this ride to continue.
Brian Bolan is a Stock Strategist for Zacks.com. He is the
Editor in charge of the Zacks Home Run Investor service, a Buy and
Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading
service that focuses on small cap stocks and also carries a risk
limiting strategy. Subscribers get daily emails along with buy, and
sell alerts.
Follow Brian Bolan on twitter at @BBolan1
Like Brian Bolan on Facebook
ALLIANCE FIBER (AFOP): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Alliance Fiber Optic (NASDAQ:AFOP)
Historical Stock Chart
From Jun 2024 to Jul 2024
Alliance Fiber Optic (NASDAQ:AFOP)
Historical Stock Chart
From Jul 2023 to Jul 2024