Fundamental analysis
The company is one of the major manufacturers of computer fiber optic cables and related services. It focuses on three main market segments: cable television, fiber optic cables to the home, and fiber optic data center interconnection. The company itself designs and manufactures several lines and types of fiber optic cables. The primary focus is B2B upper-segment.
It is now thriving with US service providers, which includes Applied Optoelectronics. The founder of the company is Mr. Thompson Lin, who is also the CEO. He founded the company in 1997 and has headed the company ever since.
The company is loss making as of 2018. The turnover has been steadily around $200-240 million per year.
Margins are high at around 30%.
The company has a relatively high debt, USD 132 million, which is 1/3 of the total market capitalization.
The company’s shares have risen more than 500% since the beginning of the year. The price has risen from about $2 to more than $12 per share.
Results
Applied Optoelectronics released its Q2 2023 results in early August. Sales fell to $40m for the quarter, but the company sees a big increase in demand for its products, especially in data centers. The company expects sales for the next quarter to be USD 60-66mn. Also a big contributor will be a contract signed by Microsoft worth up to USD 300m over the next two years.
Technical analysis
The stock is very volatile. The low price contributes to this. The maximum share price in 2017 was $100.
The beta is 1.87. Thus, a very high number.
The company is now in the channel it was last in in 2020. Support and resistance are both very strong and long term.
The moving averages are in a strong uptrend. The RSI has moved from the overbought boundary back into the neutral zone. This indicates that the strong buying pressure of the past days has eased and the price has stabilized.
Conclusion
With such a high share price increase (500%), it is clear that these are speculative purchases for the future of the company as the company is not yet profitable. AAOI is in an industry that is in high demand right now. All infrastructure in digital is mostly growing. Investor speculation on the continuation of this trend is clearly visible here, perhaps the announced big contract with Microsoft has brought its interest. The high margin on products is positive information. On the other hand, the company is burdened by relatively large debts. The current selling pressure has also been put on hold by strong resistance. However, AAOI is far from its high of $100 per share.