Which Optical Stock Will Reward You? – Fabrinet (FN) and More

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Alan S. Lowe, President of JDS Uniphase’s CCOM division, noted a pickup in Optical orders for January compared to October, which should lead to an increase in the June quarter as a result of “pent-up demand.”  Asia was becoming a larger component of JDS Uniphase’s revenue pie, as it grew from 23% of revenues and is expected to reach 26%.  It’s possible both Oplink and Fabrinet are overly cautious in their outlook, with demand for Asia offering the possibility for surprise.

Finisar Corporation (NASDAQ:FNSR) operates in the development and manufacture of optical subsystems.   The company last reported a 5.2% revenue growth compared to JDS Uniphase’s 1.2%.  More importantly, it was gaining market share, and its outlook was buoyant.  Its proprietary optical engine product “has been a great success,” with a key routing opportunity arising from it.  The company sees optic content in data centers as a key growth opportunity (through 2015), and this may be of benefit to Fabrinet.

As an aside, Finisar’s stock price is attempting to break past $17, a level which has proven to be attractive to sellers in the past.  It’s looking to repeat what Fabrinet was able to do when it pushed past $14.  However, where it struggles is its Price to Sales ratio of 1.6, which is above what may be considered ‘cheap’ for a stock (below 1.0).  This is still one to watch though.

Outlook

Based on the broader optical market, Fabrinet should be able to come in at the top end of its own modest expectations, as it has done in the past.  The stock was brow beaten to a point where it offered excellent value, and recent earnings reaffirmed such evaluations.  Assuming net income for the next two quarters was comparable to last quarter, it would have a ttm P/E of around 10.0 (at current prices).  This compares very favorably to an industry average of 15.3, and well below a direct competitor, Oplink Communications (NASDAQ:OPLK)’ current P/E of 66.3.

The article Which Optical Stock Will Reward You? originally appeared on Fool.com and is written by Declan Fallon.

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