In this corner, we have Infinera, who claims that the reason for less revenue in the upcoming quarter is an issue of the timing of a large purchase. To be conservative, they couldn’t in good faith promise it would happen in the next quarter, but that it will. So it’s not like any real harm has happened, just a slight delay. No biggie, really. Everything else is going according to plan. Great demand, great product, nothing’s changed, really.
And in this corner, the market has just reduced the value of Infinera the company by approximately 23% as Monkey currently pounds the keyboard. So almost 1/4 of the entire businesses market value has just gone poof.
The market has completely lost its mind. It’s being irrational and impatient and foul-tempered. If that’s the case, this is a situation of recognizing the short-term gloom and gobbling up as many shares as possible because “bandwith demand is as strong as ever and we’ve got the best technology to supply it.” Monkey has seen the market act irrationally before so this scenario is not impossible. It’s actually preposterous that such a minor thing as a delay in an order would wipe out almost 25% of the company’s value. I think Kevin thinks this is the case––miright?
The market is not stupid. There are lots and lots of intelligent bald humans with big brains thinking about these things. And right now a drop of 23% means the market thinks the issue isn’t simply the delay of one big customer from one quarter to the next. The issue is that the Infinera business won’t ever produce the kinds of results we thought it would because, as Monkey wrote earlier, the phenomenon of the princess always being in another castle. Meaning, if it’s not a delay this quarter, it’ll be some big customer delaying another quarter. If it’s not that, then the technology research will eat into profits. If it’s not that, then someone will come up with a fancier toy. If it’s not that, then budget constraint won’t let companies buy all of Infinera’s fancy toys. If it’s not that, then for all the bazillion deals signed––apparently little deals or else this one big deal’s delay wouldn’t have mattered so much––there will always be some big deals that don’t go quite the way Infinera would hope. Basically, the business segment itself is rotten and we thought a clearly best-in-class technology would overcome the inherent problems of the business by taking way more market share from the other guys and increasing margins along the way, eventually planting banana trees across the land. However, the market today is saying that it looks like that’s just a story and the evidence suggests the story is not true.
Days like this are so hard because with a brain as small as mine, I just don’t know which of these is actually the better fighter. But it’s cost me a lot of bananas(!!) to have front row seats.
So: huge opportunity or rotten banana?
There absolutely is insanity rampaging. Question is, however, not the two options that Monkey has proposed. In my corner of the jungle, the options are Monkey’s #1, the market has gone bonkers, or #2, 'tis I who am.
I have liquidated my SKX position (well 91% of it). It is an IRA so it cost me $10 commission to cash in what was my current position. What am I doing with that cash?
Nothing while I use my bigger-than-a-monkey brain to contemplate Monkey’s 1) and 2). Are we looking at non-GAAP insanity? A p/e of 14 or 15 TTM with growth in the forecast (at some point). Well, patience. All things in moderation.
A moment ago the INFN share was about ten cents above its 52-week low (which it hit 10 minutes ago). THAT has to be great news, no?
Whether one leans toward Implication 1, 2, or any other, I have 2 questions going forward:
I am far from an activist investor. But if the technology is so stellar and bandwidth demand is so (seemingly) infinite, should INFN’s board be considering bringing in management who could more successfully monetize those two attractive conditions?
Speaking of attractive conditions, a stellar technology and (seemingly) soaring demand…on sale for 23% off? How long before some company with bigger pockets than MrTBS, Monkey and Kevin decides some INFN vertical integration might be kinda nice? Who could likely acquirers be? What premium might they be willing to pay?
I have no idea if either of these hare-brained schemes holds any water or any concrete implications for an investor’s strategy. Just wanted to consider a couple options that seem particularly relevant this morning.
They call me,
KC I simply don’t know what to think at this point.
We have seen a number of analysts with price targets in the twenties, and now, just like that the price is hitting all time lows.
Were the analysts wrong then, are they wrong now? I have no clue.
Here is what I see right now.
INFN has a lot of cash, their products are selling well, their gross margins are expanding. That is the good news.
The bad news is that they can’t seem to get all that good news to reach the bottom line.
So what stands between the two? Spending is the only answer I have and Brad Feller acknowledged in the conference call that they would be looking at spending.
I am just glad that my basis cost is in the 6 dollar range, but I am really really tired of waiting quarter after quarter for the company to get all the good news down to the bottom line.
I wont’ reduce now, because these sell offs are always over done, driven in part by computer trading that sees the trend and then amplifies it.
It will bounce off these lows over the next few weeks and then I may reduce a good bit of my holdings.
I won’t comment on the fundies, just some psychological observations. I often see moves like this last 3 days. Tonight people will be gnashing their teeth with having still held, some of those sell tomorrow driving price down. Then the third day the last sellers get out and the stock bounces off the bottom. I’m just saying I see that often, we could have a big bounce, but I suspect that is less probably. If you are itching to buy a deal, at least spread it out. One thing for sure, it is not going to $15 tomorrow, you don’t have buy the “great deal” at the open.
I will even predict that somewhere over the next couple months it will have recovered a bit only to com back down to this low.
I have purchased plenty of “good deals” after a plummet like this - they have only gotten “better”. Go slow.