Daily Stock Watch: AAOI Stock Soars After China Sale

By Duncan Ferris

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Applied Optoelectronics Inc (NASDAQ: AAOI) is buoyant on the back of two news updates, but is AAOI stock worth your attention?

Applied Optoelectronics Inc (NASDAQ: AAOI) is generating chatter on Friday morning, with its share price climbing by more than 30% after it launched a new group of products and sold assets in China.

What is Applied Optoelectronics?

Applied Optoelectronics designs, manufactures and sells various fiber-optic networking products worldwide. The company offers optical modules, lasers, subassemblies, transmitters and transceivers, and turn-key equipment, as well as headend, node and distribution equipment.

Applied Optoelectronics was incorporated in 1997 and is headquartered in Sugar Land, Texas.

How Does Applied Optoelectronics Make Money?

The company sells its products to internet data center operators, cable television and telecom equipment manufacturers, and internet service providers through its direct and indirect sales channels. 

AAOI Stock Latest News

The company’s newly announced products, which fall under the Quantum Bandwidth brand, include a new cable plant signal generator, broadband digital access shelf and node modules, and an extended spectrum line extender amplifier.

The Quantum Bandwidth brand is a family of products that together seek to enable service providers to cost-effectively deliver scalable, high-speed data connectivity to their customers.

Additionally, the company announced it has agreed the sale of its manufacturing facilities located in China and certain assets related to its transceiver business for approximately $150m, less a holdback amount. The Company anticipates that the transaction will be completed in 2023 and is subject to customary closing conditions and regulatory approvals.

The company’s Founder, President and CEO, Thompson Lin, commented:

“The significant proceeds from this transaction will enable us to make strategic investments in higher margin and higher growth opportunities.

"After careful consideration, we concluded that it is in the best interest of the company and our shareholders for AOI to exit the transceiver market and focus our resources on our community antenna television (CATV) business and manufacturing lasers and laser components for the datacenter, CATV, telecom, and fiber to the home (FTTH) markets.

“Further, we believe that this transaction opens up new opportunities for customer expansion with our existing datacenter laser business, which has a large addressable market.”

AAOI Stock Financials

The company has a price to sales ratio of 0.33 and a price to book value of 0.32 according to data from Morningstar. These compare with respective communications equipment industry averages of 3.09 and 6.88 according to CSIMarket. This could indicate that the stock is undervalued.

The year to date has seen the AAOI share price decline by 34.91% at the time of writing, with the stock currently sitting at $3.43. Over the last 12 months the price has hit a high of $8.86 and a low of $1.48.

The company’s most recent earnings update showed revenue of $52.3m, compared $54.2m in the second quarter of 2021. The company attributed slow going in the period to a supply chain issue that resulted in a delay in the completion of several orders from a large CATV customer. The relevant revenues will instead be recognized in the third quarter.

Additionally, the company recorded a net loss of $14.5m from the period, or $0.52 per basic share, compared with net loss of $8.2m, or $0.31 per basic share in the second quarter of 2021. 

The company has cash and cash equivalents of $33.7m and total debt of $150.22m. The company does not distribute a dividend to shareholders.

Is AAOI Stock a Good Investment?

The sale of its manufacturing facilities affords AAOI an interesting opportunity to point its business in a new direction. 

On the downside, the business has been struggling for growth, with revenues failing to substantially increase and revenue from its CATV segment (which is the most significant revenue contributor) actually falling in the business’ most recent quarter. Additionally, the business has significant debts which could in time threaten its ability to continue operations.

It will be interesting to see how the business opts to use the proceeds of the sale of its Chinese manufacturing operations, but given its current performance the stock remains a speculative proposition for investors.

Four analysts covered by Wall Street Journal have a consensus Overweight rating for the stock, with an average target price of $4.27 compared with the current price of 3.43.

It’s important for prospective investors to note that this is a penny stock and thus open to a heightened degree of volatility, which may not be palatable to some investors. As such, you should consider your own personal appetite for risk before opting to invest in AAOI stock.

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Topics:
Communications Equipment
Data Centres
Telecommunication Services
Industries:
Information Technology
Companies:
Applied Optoelectronics

Author: Duncan Ferris

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Duncan Ferris does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Duncan Ferris has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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