After reporting solid Q4 2014 financial results, analysts have significantly reduced price targets on Applied Optoelectronics (AAOI); However, GeoInvesting maintains its belief that the company’s strong growth story may offer at least 50% upside to shares. AAOI is a designer and manufacturer of optical communications products for cable television (CATV), fiber-to-the-home (FTTH), and Internet data centers.
Summary of Results
- Q4 2014 revenues of $36.4 million vs $23.7 million in the prior year
- Q4 non-GAAP EPS $0.27 vs $0.02 in the prior year
- Full year revenue of $130.4 million vs $78.4 million in the prior year
- Full year non-GAAP EPS of $0.68 vs $0.01
GeoTeam to Track AAOI Story
While we investigate why analysts have cut their price targets, we intend to actively track the company for the following reasons:
- We believe shares may offer at least 50% upside from current prices based on EV/EBITDA multiple analysis
- AAOI has reported uninterrupted revenue growth from $40.5 million in 2010 to $130 million in 2014. Furthermore, analysts expect revenues to increase to $197 million in 2016.
- Analysts expect EPS to grow from $0.68 in 2014 to $1.18 and $1.57 in 2015 and 2016, respectively.
- Like several other companies we follow in similar market segment, like Ex-GeoBargain GTT Communications, Inc. (GTT), AAOI business model appears to embody a recurring revenue theme.
- Even though analyst have cut price targets on the stock, they are still much higher than the today’s stock price. (Analyst price targets range between $15 to $20).
Caveats
- We caution investors that shares have been falling for some time, despite the company’s favorable financial performance. For example, the stock’s 52 week high is $28.01.
- We intend to interview management to make sure we are not missing something with this story.
To stay ahead of the market with GeoInvesting arbitrage and learn about investment ideas not yet digested by the market, Sign up now for More Research and Insight