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Bull of the Day

Alliance Fiber Optic Products (AFOP - Snapshot Report) recently beat estimates and estimates soared. Following a weak showing in yesterday's session, it is the Bull of the Day as a Zacks Rank #1 (Strong Buy).

More Broadband Required

I recently wrote about my "Best Tech Stocks For 2nd Half of 2013" and I opined about how the move to mobile is here. The flood of devices is upon us and that is creating some interesting pain points.

Beyond the obvious plays in the chip space and even Wi-Fi play like Ruckus Wireless, there is the need for a bigger pipe to handle the impending strong demand for broadband internet. Facilitating that demand will be companies like Alliance Fiber Optic Products

Company Description

AFOP designs and manufactures components, modules, and subsystems that empower dynamic optical network, and facilitates 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 History

While the rest of Wall Street saw the most recent quarter as a two cent beat, Zacks has it as a meet. We add back stock option expenses to get better view of what the company truly spent. That higher standard might also play into the earnings meet on the March quarter.

Prior to the two meets, was a miss of one cent in the December 2012 quarter and a beat of $0.03 for the September 2012 quarter.

The big difference here is that while revenue growth was flat in 4Q12 and 1Q13, 2Q13 saw revenues grow from $12M to $19M. That means a bump higher of more than 50%. The Last Mile

There has been a lot of talk about dark fiber (unused). Google was widely reported to be buying tons of dark fiber a few years ago, and did so at dirt cheap prices. Since then, there have been several other players getting in the market as demand for higher speeds has driven the market.

One company with the tools to help get the fiber from the information superhighway to the consumer is AFOP. They so called last mile is basically space between a mass fiber hub and your line that connects to your house or business.

Earnings Estimates Adjusted

Say hello to some big time expectations! In March the Zacks Consensus Estimate for 2013 was calling for $0.99. The number bumped up to $1.06 in April and was again raised to $1.32 in May. Analysts went on vacation in June, as the consensus didn't change, but they really kicked estimates higher following earnings in July. The consensus now stands at $1.71. That means earnings estimates have increased by 71% since March.

The same can be said of 2014 estimates. In March they stood at $1.18 and then moved to $1.25 in April. Another jump to $1.56 in May was followed by a vacation month in June. Then the earnings report in July sent 2014 estimates up to $1.95.

Valuation

The valuation picture for AFPO is highly attractive considering the massive earnings growth. While the company trades at a 29x trailing PE (compared to a 20x industry average) the more important measure of forward PE of 18.6X shows the company trading at a slight discount to the industry average. The discount extends to book value, with the stock trading at 4.5x book compared to a 4.9x industry average. Even price to sales shows this stock as being undervalued, with a 5x sales multiple compared to a 6.1x industry average.

The Chart

The price and consensus chart for AFOP tells you all you need to know about this stock. Earnings are clearly driving the higher stock prices, and with the estimates are moving up in nearly every month. 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.

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.

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