Why Applied Optoelectronics Stock Is Up 7%

Applied optoelectronics (Aoi 6.17%) The stock was up double digits in early trading on the Nasdaq Stock Market on Tuesday before reverting to gains of about 7.4% by 12:12 p.m. ET.

If you own stocks of fiber optic networking equipment manufacturers, you may have Rosenblatt Securities to thank for your profits. This morning, Rosenblatt upgraded Applied Opto stock to a ‘buy’.

What Rosenblatt Said About Applied Optoelectronics

With a history of losses in its communications equipment business, a negative trailing P/E ratio, and a nosebleed 84x earnings P/E ratio (based on next year’s earnings forecast), Applied Optoelectronics isn’t most investors’ first choice for value stocks. . But all you have to do is wait, says Rosenblatt. This time it’s different!

According to Rosenblatt, Applied Optoelectronics’ communications equipment sales are “poised to explode” starting later this year, “driven by AI 400+G optical interconnects for data centers and DOCSIS 4.0 amplifiers for cable networks.” (Yes, you read that right: Rosenblatt is claiming that Applied Opto is a play on artificial intelligence.)

Analysts predict that by 2025, the global market for this type of equipment will grow to $7.5 billion or even $12 billion. And with Applied Opto expected to capture 10% market share, the consensus forecast for the company’s 2025 revenue of $465 million “may be conservative,” StreetInsider.com cites an analyst’s forecast.

Should you buy Applied Optoelectronics stock?

The math here isn’t difficult. Rosenblatt claims Applied Optoelectronics could beat expectations of generating between $750 million and $1.2 billion in revenue next year. This is a significant increase from the $222 million estimated to have been raised last year. They also forecast that the company will earn at least $1.15 per share next year, which, if correct, would value the company at less than 15 times future earnings. That’s a bargain for a company that may or may not nearly quintuple its overall revenue. Even just for the next two years.

But think about it: Applied optoelectronics has never appeared anywhere before. near We’re selling at this level in our history. I haven’t even gone to work yet favorable Since 2017, it has not even generated positive free cash flow during that period.

Could all this change by 2025? I believe anything is possible. But considering that Applied Optoelectronics stock is already up 568% over the past year, the stock may benefit from rumors that this time will be different, despite continuing to lose money and burn cash. , has already been created.

Personally I would stay away.