Dan,
I’ll admit I didn’t go very deep, but that’s largely because the hairs were standing up on the back of my neck due to how much this reminds me of Infinera. A bunch of optical products I will never understand, and they’re selling TONS more than last year. They also expect to sell tons more in the future, which I’m sure they will, until they don’t.
First flag: Lumpy growth
Why was the stock price doing nothing until ~12 months ago? Well among other things, growth was lumpy at best:
Year Q1 Q2 Q3 Q4 Tot
2014 36 130
2015 30 50 57 53 190 (46%)
2016 50 55 70 85 260 (37%)
2017 96 449 expected (72%)
So in Q1 of 2016 they grew revenue 80% YoY. The next quarter, 10%. Then 23%, then 60%, and now 91% in Q1. What is going on???
Another way to look at is that they were hovering around 50M / quarter from Q215 through Q216 and then suddenly started climbing, and are expected to continue in 2017. Why?
Well, here I did look ever so slightly deeper, and found that on April 18th 2016 they gave preliminary guidance, coming in on the bottom side of their range for Q1 2016. In Q2 they beat, and then on Sep 6 they raised Q3 guidance. It seems since that raise, things have been going really well for them. But the fact that they had to alter guidance twice last year doesn’t instill confidence. The fact is, like any company that makes products, guidance is difficult. Whether they hit, miss, or beat depends on how much customers decide to buy in a 90 day period.
Second flag: The market doubteth
The 2017 full-year EPS (non-GAAP, I assume) is estimated on Yahoo to come in at 4.71, so their Fwd PE is ~13.4. Companies growing revenue 91% don’t have PE’s of 13.4. I’m pretty sure what it means is that a lot of the market is highly concerned that this story will come to an end sooner than later.
Third flag: Small base
I’ve seen a lot of companies have a MUCH easier time going from 100M in annual revenue to 200M or 300M than they’ve had growing after that. I realize these numbers are fairly arbitrary and depend on the type of business and zillions of other factors, but that’s what I’ve seen. Small companies grow until they don’t. That’s why it’s so important to know what’s driving the growth. Of course figuring out all the factors that go into that is the hard part, and I certainly don’t know what they are, but the only way I can possibly imagine they’ve been able to grow like they are growing right now is that the competition hasn’t caught on yet. In my opinion, there’s no way it’s anything but a matter of time. Of course, even if I’m right, I certainly don’t know when the ride will end.
Conclusion: I’m not interested in looking further.
I didn’t even look into customer concentration, SBC, how much of the growth is organic (hopefully all of it – I didn’t see any acquisitions but I suggest confirming this if you continue to investigate), and a bunch of other stuff, because I’m just not interested in this type of business. I may be missing out on something great, but how would I know? I don’t feel qualified to evaluate the ins and outs of the market for these products, nor inclined to attempt it. I’ll stick with what I know.
Bear