Back to top

Image: Bigstock

Should You Buy Applied Optoelectronics (AAOI) Stock?

Read MoreHide Full Article

Shares of one of Wall Street’s trendiest stocks, Applied Optoelectronics (AAOI - Free Report) , dipped more than 1.5% on Thursday. However, the fundamental picture for this advanced fiber-optic device maker hasn’t changed, which means investors could be getting a slight discount on what is still a Zacks Rank #1 (Strong Buy) stock.

Applied Optoelectronics shares have been on a roll ever since the company reported better-than-expected earnings earlier this month. For the first quarter, AAOI posted earnings of $1.10 per share, blowing by the Zacks Consensus Estimate of $0.95 (also read: Here's Why Applied Optoelectronics Stock Popped After Earnings).

“AOI started off the year with a record performance, and in the first quarter, achieved the highest revenue and earnings in the company's history. Our record results this quarter were driven by continued demand for our market-leading datacenter products and solid execution," said company CEO Dr. Thompson Lin.

The CEO really hits it on the head here, as the company has benefited remarkably from an increased demand for data center products. And you don’t just have to take my word for it.

Earlier this week, shares of Applied Optoelectronics saw a nice boost after Needham & Co. analyst Alex Henderson initiated coverage on the stock with a “Strong Buy” rating and an $80 price target. Henderson noted that the company will benefit from tech giants like Amazon (AMZN - Free Report) , Facebook , and Microsoft (MSFT - Free Report) upgrading their data centers to support ultra-fast communications for cloud services.

“We expect very strong demand growth over the next several years as the Web 2.0, Big Data, social media and [cloud] companies drive efficiencies through their current and new scaled-out data-center footprints," he said.

As for now, Applied Optoelectronics is a Zacks Rank #1 (Strong Buy) stock because of its impressive earnings estimate revision activity. Over the last 60 days, we’ve seen four positive revisions for the company’s full-year and next-year earnings estimates.

It’s also worth noting that Applied Optoelectronics is sporting an “A” grade for Growth in our Style Scores system. Our current consensus estimates call for the company to post EPS growth of 270% on sales growth of 70% this fiscal year. Looking ahead, that growth is expected to continue, with 2018 estimates calling for EPS growth of 16% and sales growth of 19%.

Of course, if we are pegging this company’s future potential on the demand for data center materials, then investors will want to keep an eye on the overall sector too. This stock will likely respond to sector-wide news, whether it is encouraging or discouraging.

Nevertheless, the strong Zacks Rank and positive growth metrics should be enough to excite many investors right now.

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Amazon.com, Inc. (AMZN) - free report >>

Microsoft Corporation (MSFT) - free report >>

Applied Optoelectronics, Inc. (AAOI) - free report >>