In an article now out of embargo, Ben Fox grants Alliance Fiber (NASDAQ:AFOP) an intrinsic value of $20/share, and predicts the optical component vendor will see a 19% revenue CAGR over the next 5 years to go with slight margin expansion and a flat opex ratio.
He also praises AFOP's exposure to fast-growing market segments (metro, last-mile, data center) and ability to weather industry price pressure, and expects a modest buyback program to be launched in 2015.
However, Fox refrains from recommending AFOP due to a lack of management transparency regarding equity compensation. He's also not pleased with the accelerated vesting of options granted to management in 2010, and a pickup in the pace of insider selling.
Fox adds "there are no catalysts on the immediate horizon that would drive AFOP's share price closer to its intrinsic valuation." However, he thinks it's possible a rival or P-E firm will buy the company if its valuation remains depressed.
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