I’ve been hearing from a lot of people writing in and wondering what’s going on with Applied Optoelectronics (AAOI) right now. Clearly, AAOI woke up on the wrong side of the bed last Friday. Following Thursday’s 4% dip, shares went down more than 17% that morning, and they haven’t recovered since. In today’s blog, I’ll address precisely what’s happening with this once promising stock.
First, as always, don’t panic. Emotional knee-jerk reactions have never helped any investor make money.
For AAOI’s shareholders, Friday morning’s double-digit drop was gut wrenching, especially considering how volatile AAOI has been in recent months. But I never recommend following the crowds to the exits. Wall Street is still in the midst of a whiplash response to the company’s CFO’s remarks on Thursday night, but I expect clearer heads to eventually prevail once the dust settles.
Here’s what happened. Last Thursday, Applied Optoelectronics pre-announced third-quarter sales and earnings results. And they were disappointing to say the least. Due to weaker-than-expected sales to one of its big cloud clients, which everyone is assuming is Amazon (AMZN), Applied Optoelectronics will release sales next month that will miss analysts’ estimates significantly.
For the third quarter, Applied Optoelectronics expects sales to be between $88 million and $89 million, which is well below the company’s previous forecast for sales between $107 million and $115 million. If you recall, investors were none too happy about that forecast either. So, they’re understandably even more upset about this revised forecast.
Third-quarter earnings per share are now expected to be between $1.04 and $1.09, also below the company’s previous forecast for earnings per share between $1.30 and $1.43. Overall, Applied Optoelectronics’ new sales and earnings forecast are well below analysts’ expectations for earnings of $1.31 per share on $111.58 million in sales.
However, looking at the company’s new forecasts, this still represents 25.5% to 26.9% annual sales growth and 173.7% to 186.8% annual earnings growth. Now, that’s solid earnings and sales growth, but I know that’s little comfort for investors in light of this past week’s dramatic pullback.
Applied Optoelectronics will officially announce third-quarter results on Tuesday, November 7. Between now and then, we should see AAOI shares recoup some of their losses.
Even with all this hoopla, AAOI still maintains an A-rating in my Portfolio Grader tool. So, this stock is definitely worth keeping an eye on to see what happens over the next couple weeks as we approach the company’s actual earnings date.
In the meantime, I urge you to stay tuned into this blog as well. Each week, we’ll continue examining the winners and losers throughout this quarter’s earnings season.