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Applied Optoelectronics: How High Can This Stock Go?

Kumquat Research profile picture
Kumquat Research


  • Applied Optoelectronics' shares are blasting off again, up 27% over the past five trading days.
  • Preliminary Q2 results show revenue and EPS well above estimates.
  • The concerns over AWS appear unfounded.
  • This stock still has more room to run.

Applied Optoelectronics (NASDAQ:AAOI) reported preliminary Q2 results well above guidance on both revenue and EPS, fueling further stock gains of 7%+ on Thursday. This caps a five-day run-up of 27%, leading to the question: How much higher can this stock go? Earnings growth is ramping rapidly along with revenue growth, profit margin remains robust, and fears that AWS contracting out to Fabrinet (FN) would mean lost revenue for AAOI appears unfounded, indicating we can be in for further upside ahead.

ChartAAOI data by YCharts

I first covered AAOI at the end of June as part of my "Buy On The Drop?" series, where I rated the stock a Buy when it was trading at $59 per share. That article can be read here. The stock price has appreciated more than 30% since then, but I think there is still room to run based on operating results and the broader growth of 100G, especially in the datacenter.

For preliminary Q2 results, AAOI reported revenue of $117 million, above previous guidance of between $106 million and $112 million, and non-GAAP EPS of between $1.31 and $1.36, which is a whopping 17% higher at the midpoint than the previous guidance range of between $1.09 and $1.19. There are still precious few details about why exactly the company exceeded guidance by such significant margins on both the top and bottom lines, but management made reference to expanded capacity and lower manufacturing costs. More details will come on the Q2 conference call, but for now, the numbers on their own are enough to impress.

Another impressive metric here is the profit margin, which increased to 23.1%, up 60 bps QoQ and more than 1,800 bps YoY. The company often talks up how no one can beat it on cost due to vertical integration, and the healthy and expanding profit

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To follow me click the "Follow" button! (Easy right?) Articles written and comments posted by Kumquat Research are NOT financial or investment advice, and only express his opinion. Do your own due diligence!

Analyst’s Disclosure: I am/we are long FN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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