Finisar (FNSR) Investors can expect a major short covering. FNSR has a reported 25 Million shares short and probably more than twice that amount in naked shorts.
FNSR is now in a growth phase and has indicated that it will repay all notes due October 15, 2008. Thus a large buy in by shorts will happen. This should drive the stock price much much higher.
The full amount due on the company's 5 1/4% convertible subordinated notes is $92 million. FNSR says its existing balances of cash, cash equivalents and short-term investments, together with the cash expected to be generated from future operations, will be sufficient to repay these notes and to meet cash needs for working capital and capital expenditures for at least the next 12 months. FNSR also has a $50 million revolving line of credit from Silicon Valley Bank.
FNSR's analyst day is next week on October 7, 2008. All analyst estimates should be raised well above current earnings estimates due to strong forward guidance. Expect upgrades and rating changes. Look for a move above the 50-day and 200-day moving averages of $1.33 and $1.39.
FNSR is very undervalued with a current stock price of $1.09 at the close yesterday. Its shares trade at more than a 50% discount to its sector peers with a forward P/E of 5 and a price to sales ratio of less than 1.
Disclosure: long FNSR