Bull of the Day: Alliance Fiber Optic (AFOP) - Bull of the Day
December 02 2013 - 1:45AM
Zacks
Alliance Fiber Optic Products (AFOP) was profiled back on
August 2, and since that time, the stock rose as much as 45%, but
has fallen all the way back to the original price. The ride isn't
over for this fiber optic play and it is again the Bull of the Day
as a Zacks Rank #1 (Strong 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. Since then, there have
been several publications stating the same thing. What the others
were missing is the idea that those devices will all drive the need
for more bandwidth from the carriers.
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 two before it as a
meet.
The main idea with a company the size of AFOP is to look at
revenue growth. Revenues has started to increase, coming in at
roughly $19M for the June 2013 quarters and $23M for the September
2013 quarter. That topline growth is likely to continue.
Stock Split
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.
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. The consensus now stands at $0.96.
Valuation
The valuation has become much more attractive as the stock price
has fallen. The forward PE moved from 18.6x to 26.6x and is not
back to 15x 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 back again to 4.1x as the industry average has
held still at 6x. One metric that stands out to me is the expected
revenue growth rate. Estimates are calling for 21% growth compared
to 12% for the broader industry. That sort of growth on the top
line should lead to impressive earnings growth as well.
The Chart
The price and consensus chart for AFOP shows how the earnings
movements have helped push the stock higher. Over the last year or
so, the stock has seen a dramatic increase in price as estimates
have risen. The estimates have not decreased while the stock has
seen a healthy correction. The fundamentals and story look to still
be intact and this recent move lower has presented a great buying
opportunity.
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.
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