When I listed my stocks I mentioned Of my non-MF stocks, AFOP has not worked out for me, but I don’t have a clue why. I’ll probably gradually get out of it if it doesn’t turn around. and I did sell it at about $15.20.

Yesterday it announced earnings, which were incredibly good. Revenues up about 85% and earnings almost triple to an adjusted 29 cents (GAAP 25 cents up from 11 cents). They forecast revenues up at least 86% for the current quarter.

However, they “missed analysts forecasts” and sold off 20% from $15.54 to $12.45 where I just took a small position again.

They now have a trailing PE of 12.!!!

Just thought I’d let you know.




Thanks for sharing your thoughts on AFOP. Seems like an interesting value and a great opportunity given high growth rates, low market cap, strong balance sheet, and low/reasonable PE and P/S ratios. Their management seemed to exude confidence and optimism for the future on the earnings call.

There was an article yesterday on SA before the drop today saying it was a great short-term opportunity. Some in the comment field even felt the shares could merit a $20+ price in short order.…

One question I have is whether their industry dynamics(fiber optic components) are worthy of a long-term investment. Some have characterized the industry as cyclical and a risky investment as a result.

Do you have additional articles and data points available for us to access by chance? (Apologies if you previously posted it in another post.)

Best, Vic

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Thanks for your post. I own INFN which is a Hidden Gems recommendation. Both companies sell equipment into telecom and will benefit as carriers continue to upgrade their networks to handle the growing demand for internet traffic (more data, more video, more mobile).

I agree that INVN and AFOP are good buys now.


I meant INFN not INVN.

Vic, I am sure they must be in a cyclical industry which is why the price is so cheap.

Here are my prior notes up to yesterday


Alliance Fiber Optic Products AFOP
(Provide broadband fiber pipe, installed by AT&T, etc)

July 2013 – Rec by Zack’s Home Run (much edited)
Alliance Fiber Optic Products (AFOP) is our latest pick. Businesses will soon have a big demand for internet access and fiber optic pipe is part of the solution. That means that this is not just a fad or short term winner, this is going to be a long term idea that produce huge gains.
This is a Zacks #1 Rank stock.

I think this stock will do great for us over the long term as businesses realize they need a larger pipe for more internet bandwidth. There is the need for a bigger pipe to handle the impending strong demand for broadband internet. Facilitating that demand will be companies like AFOP.

Company Description
AFOP designs and manufactures components, modules, and subsystems that facilitate the migration of fiber optics from the long haul through the last mile. That is all industry jargon for they make a fiber optic connection to your business or home a reality.

Earnings Estimates Adjusted
Say hello to some big-time expectations! In March, the Zacks Consensus Estimate for 2013 was calling for $0.99. In April it was raised to $1.06. In May it was again raised to $1.32. In July, following earnings, the analysts really kicked estimates higher to $1.71. That means earnings estimates have increased by 71% since March.[NOTE THEY SPLIT 2 FOR 1 SINCE SO YOU HAVE TO DIVIDE BY TWO].

The same can be said of 2014 estimates. In March they stood at $1.18. They now stand at $1.95.

The valuation picture for AFPO is highly attractive considering the massive earnings growth. While the company trades at 29x trailing earnings, because of the rising estimates, it’s at only 18.6x estimates for 2013.

The concept of broadband to the home is in its infancy, but with great growth comes great stock prices. If the company can continue to post big revenue growth, the stock price will continue to move at what may seem like the speed of light.

July 2013 – Announced Jun quarter results

Revenues totaled $19.0 million, up 65% from $11.5 million a year ago, and up 57% sequentially.

Gross Margins increased to a record 38%, up from 34% a year ago and 36% sequentially.

Net Income was $4.3 million, or 49 cents per share, more than triple the 14 cents per share a year ago and more than double the 22 cents a share sequentially.

Cash of $49 million. No debt.

There are 8.75 million shares outstanding.

Included in expenses was stock-based compensation of $411,000 for the quarter.

"We are very pleased with the exceptional financial performance and progress AFOP made in the quarter. With excellent efforts by our Asia operations, we managed unexpected demand increases and delivered much higher than estimated quarterly revenues.

“More importantly, customer demand remains strong. Therefore, we expect revenues to increase to another record level, between $19.5M and $20.5M, in the third quarter of 2013. With our continued focus on operational efficiency, we expect our gross margins and profit will improve in the quarter as well.”

Biggest customer is AT&T.

Conclusion: They are a little company, under-followed (only one analyst on the call), vertically integrated manufacturing, rapidly growing and expanding. Could buy a little more.

Aug 2013 – Declared 2-for-1 split

Sept 2013 – Announced a major increase in guidance
AFOP announced that it will raise its financial guidance for the September quarter. It now expects to report net sales above $22 million, exceeding the previously stated revenue guidance of $19.5 to $20.5 million. This revenue level represents a 16% and 78% increase on a sequential and year over year basis respectively.

“With increased demands for datacomm applications, customer orders have been stronger than expected, since the last conference call. We are excited with this development and the opportunity to deliver another record quarterly financial milestones the third quarter. We will continue our capacity expansion efforts to support our customers’ growing requirements and to increase AFOP market share in this emerging industry growth cycle.”

Oct 2013 – Announced Sept quarter results
Revenue up 86% to $23.1 million, well above their upwardly revised estimate.

Guidance for Revenue up 80% in Dec Quarter.

Revenues were $23.1 million, up 86% from $12.4 million up 21% sequentially $19.0 million.

Net income of $5.6 million, tripling from $1.9 million, up sequentially from $4.3 million.

Earnings of 31 cents, almost tripling from 11 cents and up from 24 cents sequentially.

Included in expenses was stock-based compensation of $563,000. When I added that back in, Adjusted earnings were 34 cents almost tripling from 12 cents and up from 27 cents sequentially.

“We delivered record quarterly revenue exceeding the previous guidance. In addition, profit margins improved and resulted in record profits. The balance sheet continued to strengthen with improved inventory turns and a higher net cash balance.”

Data bandwidth demands continue to increase and the next growth cycle in the fiber optics industry is emerging. While we are pleased with delivering record financial performance for this year, we are excited with the business prospects in the coming years. Even with year-end seasonal effects in the fourth quarter, we expect revenues in the quarter to be at a similar level, about $22.5 million, which would represent 85% growth year over year.

Conference Call: This is the 30th consecutive quarter that they were profitable.

Conclusion: This company seems well managed and is riding a wave, but I should watch it carefully as it doesn’t have an unlimited runway. It is reasonably priced with a trailing PE of 24 at a price of $20, and a forward PE at the end of just next quarter of 18.7. Keep holding.

Nov 2013 – They raised their annual cash dividend from 12.5 cents annually to 15 cents (about a 1% yield).

Nov 2013 – Conclusions: Listening to one of their presentations, it became clear that this is a very small, well-run, profitable business in a standard, unexciting field.

All growth is organic. Just one acquisition in 2004. They are accumulating cash and raising their dividend. Could do a share buy-back. I probably should keep my position small though.


Vic, I am sure they must be in a cyclical industry which is why the price is so cheap.

Yes, it is is cyclical industry. The telecoms are in the beginnings of a network upgrade cycle. The upgrades are being driven by increased demand for bandwidth driven by more mobile data and more video streaming. The cycle is expected to hit the peak in 2015. There is discussion about this on the HG INFN board.




Thank you so much for sharing your notes. You are so generous.

The Zacks notes are quite interesting, and definitely bullish on a long-term adoption trend in businesses and residential venues to help address the Internet bandwidth issue. I can tell you first hand as someone working in the software/mobile space that there is a huge, growing bandwidth supply problem.

I view the shares at current levels to be very attractive, with little downside risk.

I started a small position as well at $12.14.

Best, Vic

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I looked at the numbers of this Co. and read Q4 cc. I find all the numbers are fantastic. I cannot find anything wrong with this as an investment except for the following

  1. cyclical - semi industry is notorious for its cyclical nature
  2. very small cap - may be more fragile and more impacted when business environment changes
  3. looks like thin management layer - what about corporate control and governance
  4. insider sell – quite a bit
  5. not sure but have a feeling that is sells heavily to china.

But the strong numbers overwhelms the weakness. I got a some today. thanks for bringing this stock to our attention.


Hi all,

There’s some good discussion of the telecomm industry cycle in this article on the Fool’s free site:…

AT&T started it off in November when it announced that it would be spending $14 billion over the next three years to greatly expand its wireless infrastructure, with the goal being to catch Verizon, which has more than doubled the number of cities that are 4G LTE-capable relative to AT&T. Following AT&T’s announcement, in 2013 we saw Japan’s SoftBank scoop up a majority stake in Sprint for $21.6 billion, giving the struggling service provider some much-needed capital to expand in 4G LTE network, and T-Mobile gobbling up MetroPCS Communications in order to instantly gain 9 million new customers.

The clarity you seek lies with fiber-optic and fiber-optic component suppliers
By now you’re probably wondering, "How do we know this increase in spending is trickling down to equipment makers? The answer to this question is written entirely in fiber-optic and fiber-optic component suppliers, which have seen a revival of sorts this year. When telecom service companies announce a big boost in spending, it often takes a few quarters for that money to trickle down to fiber-optic providers. Have a look at some of these big EPS hikes in just the past three months.

The tech upgrade cycle when it comes to wireless infrastructure is pretty straightforward. First, wireless providers announce the race to deploy new networks, then fiber-optic and fiber-optic component suppliers benefit, and then finally, networking equipment makers, such as data and networking optimization join the party not long after. With that mind in, here are a few companies that could be next in line to see big gains that you would be wise to have high on your watch list:


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I find all the numbers are fantastic. I cannot find anything wrong with this as an investment


The only thing which seems to be causing the sell-off is that they predicted $22.5 million revenue and came in at $21.8 million. But this is a little company. Missing your prediction by 3% is a big “So what?” to me if they are up 79% year over year and up over 110% from the year before that when they had $10.1 million. It’s madness to sell it off 20% to a PE of 12 when it is growing at 80% per year. And paying an increasing dividend!?

How many little companies are making so much cash that they are paying a dividend, splitting the stock, increasing the dividend, and forecasting revenue up “over” 85% for the next quarter???

not sure but have a feeling that is sells heavily to china.

I’m not sure either, but I know their biggest client by far is ATT.



Also, little companies that trade thinly like this can have a gross overreaction and give us a real bargain.


I’m not sure either, but I know their biggest client by far is ATT.

So who is the second and third biggest provider.

This might be the problem with the company Saul, they might not have penetration into the market.


That may be a risk, though not out of the ordinary for a smaller company who rides the back of a large customer. INFN wish they had a ATT or VZ that would be their largest customer and a reference for them.

I think this is a really intelligent play and from many angles a less risky investment than lets say INFN or CIEN. I am not just talking about the valuation metrics vs growth performance, but I am talking about the business. From their annual report:

“Alliance Fiber Optic Products designs, manufactures and markets a broad range of high-performance fiber optic components, and integrated modules incorporating these components, for leading and emerging communications equipment manufacturers and service providers. We offer a broad range of products including interconnect devices that are used to connect optical fibers and components, couplers and splitters that are used to divide and combine optical power, and dense wavelength division multiplexing, or DWDM, devices that separate and combine multiple specific wavelengths. Our emphasis on design for manufacturing and our comprehensive manufacturing expertise enable us to produce our products efficiently, with high quality, and in volume quantities. Our product scope and ability to integrate our components into optical modules enable us to satisfy a wide range of customer requirements throughout the optical networking market. Our customers deploy our products in long-haul networks that connect cities, metropolitan networks that connect areas within cities, last mile access networks that connect to individual businesses and homes, and enterprise networks within businesses.”

In other words, their customer base is quite wide. They sell to service providers that have advanced engineering staffs such as ATT as they build, improve their own existing optical networks PLUS AFOP components are used in equipment manufacturers’ optical solutions.

Yes, it is a cyclical industry, but we are at the start of a new investment cycle which should last 5 years or so.

I am usually quite adverse to telecom related companies because it is such as tough business, but AFOP I am going to research more.

Great lead. Thank you Saul



Thanks Bashaar,
In other words, their customer base is quite wide. They sell to service providers that have advanced engineering staffs such as ATT as they build, improve their own existing optical networks PLUS AFOP components are used in equipment manufacturers’ optical solutions.

These people are competing with JDSU. I just did a short look at them but I would be interested in how wide their customer base is. If Calix or ALU is using their products that could be big but I am sure Infn does not use any of their equipment, and I doubt Ciena does either. The components that they make are not high tech but more a commodity product that almost anyone in the industry can make.


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Wow, I bought some at $11.39 today and it closed at $11.91. The low was an unbelievable 11.16. When the market is in sell mode, unbelievable things can happen.


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Good Job Saul.
I like that the company does not have any debt and I also like that they have been growing their cash. Also its impressive that they pay a dividend but I think I would rather see them put it back into the company. They sell attennuators, FOT’s, and SFP’s which put them in competition with Corning,ADC,JDSU,Champion and a number of other companies. They are selling 70% of their product to Data Centers and 30% to Telco’s. Their last conference call was impressive and I agree we should see phenomenal growth in this area for 2014. They are in the GPON space which is growing and will get bigger. I just need to look a little more into this. They also stated on their last conference call that some of their products are a commodity but they are selling it as a package so they are able to get higher returns because of the way they are mixing the product. (At least thats the way I understood it)


This little downturn has presented some great opportunities. I don’t know what tomorrow will bring, I’m feeling pretty good about the long term :wink:


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Any particular opportunities u are looking at?

I am putting in a limit order to purchase more AMBA if it dips below 25 again as it did yesterday.

The Seeking Alpha article is definitely bogus as shown by a fellow Fool in the field. And the PE appears very reasonable at a forward value of 23.

What say you, Saul?


I would certainly add to my AMBA if it wasn’t already my 2nd biggest position.