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
Saul
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.
Valuation
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.
Conclusion
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.
