Fun while it lasted

I wanted to thank everyone, once again, for your input regarding my AAOI holding. I sold my position (except for a 1% stub) after the share price took a dramatic turn downward. Here’s the story:

Shares of fiber-optic component vendors Applied Optoelectronics ( AAOI ) just turned south a short while ago following a negative report from boutique research shop BWS Financial’s Hamed Khorsand… he thinks the company is going to lose sales to Amazon ( AMZN), its largest customer, because of new transceiver modules being built by Fabrinet (FN), the contract manufacturer, and directly supplied to Amazon.

Moreover, Khorsand believes Applied hasn’t yet mastered " 100G," the higher-speed transceiver, and is mostly shipping 40G. He thinks the company’s already losing some 40G business with Amazon, “We have also learned AMZN has been cutting backlog with its 40G vendors, which would further affirm our belief AAOI would lose revenue from AMZN when the crossover to 100G is made versus the current consensus that business would continue as normal.”

In addition, he doesn’t think they have the resources to make the lasers required for 100G.

If Khorsand is correct (although his “TipRank” is rather poor), AAOI’s parabolic rise may have come to an end. As I said, it was fun while it lasted.

Note: Khorsand cites Fabrinet as Amazon’s supplier of 100G transceivers.

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Hi Putnid,
If AAOI does lose Amazon that would be a big hit on them.

Moreover, Khorsand believes Applied hasn’t yet mastered " 100G," the higher-speed transceiver, and is mostly shipping 40G. He thinks the company’s already losing some 40G business with Amazon, "We have also learned AMZN has been cutting backlog with its 40G vendors, which would further affirm our belief AAOI would lose revenue from AMZN when the crossover to 100G is made versus the current consensus that business would continue as normal.

I don’t think this guy knows what he is talking about. AAOI started testing their 100 gig modules in Q4 of 2014. In Q415 their 100g modules started to ship and they had 5 design wins with those modules. In Q416 20% of their Revenue was from the 100g module. Finally in Q117 100 gig modules were 30% of their Revenue and they think it is just going to keep growing.

I think this guy was writing fake news but this is a small company who can have their stock moved by people that have no scruples. It might be a good idea to sell only because it looks like this company could be in for a rough ride if the shorts are targeting it.

Andy

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Hello, Andy -

I think this guy was writing fake news but this is a small company who can have their stock moved by people that have no scruples. It might be a good idea to sell only because it looks like this company could be in for a rough ride if the shorts are targeting it.

It sure looks like fake news to me. Spent some time after the AAOI sell-off began researching the “analyst” and his shop. Two-person operation, lousy track record. Even so, Barron’s ran with the story which was picked up by DJ Newswire and the damage was done (shares down to $88.00 in after hours).

I give a bit of credit to Barron’s for running a rebuttal piece with a response by AAOI’s CFO:

http://tinyurl.com/yamjr449

Applied Opto CFO Rebuts Inaccuracies About Its Products

The article is a good read. Bottom line? This company has been under all sortsa short attacks since forever. My take? Me likes. I rather like trading volatile stocks that are subject to mis-information. Gives me several opportunities to sell high/buy low/sell high again. I’ll be looking to repurchase shares if given a good opportunity.

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Thanks Putnid for the article and staying on top of this. I agree this could be a great trading stock.

Andy

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I’ll be looking to repurchase shares if given a good opportunity.

Looks like they broke out of a base around the $79.65 price point, and on strong volume (back in mid July). It has had a short and fast run up to as high as $95, about a 20% increase. These growth break outs can frequently go up 20-25% and they rest, or re-base as people take those nice profits. Look for a trip back to the 50 day moving average and then a nice bounce on volume as a place to get back in, as that is a typical signal that institutions are picking up shares at a place they like. This is a ways off, but the average will still move up some even if the stock keeps coming down.

If it tries to test the 50dma and then slices through on high volume, stay way.

Another place to look for technical support is new the old break out point below $80.

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