Ciena (CIEN) Has $8.5 Billion in Backlog, but Can It Justify Its Premium?

Ciena (NYSE:CIEN) took in $1.67 billion in its latest fiscal quarter, 37% more than a year earlier. Over the past five years, though, its sales grew only about 6.2% a year, and its earnings per share shrank about 18% a year.

That gap is the question hanging over the stock. Network equipment makers have ridden demand surges before, and Ciena’s own record shows how quickly earnings can fade. This time orders are piling up faster than the company can ship, which makes a longer run more believable than usual. The demand looks real, but the price asks for it to last longer than the company has promised.

Ciena makes the optical equipment that moves data over fiber between data centers and across carrier networks. Its optical networking business made up about 71% of sales last quarter. Chief executive Gary Smith said roughly half of Ciena’s business now comes directly from large cloud providers. Finance chief Marc Graff said those purchases grew more than 80% from a year earlier. Ciena is one of the 8 Best NYSE Stocks with Huge Upside Potential.

Orders Are Running Ahead of Shipments

The quarter closed with $8.5 billion of orders still to ship, and management expects that backlog to pass $10 billion by the end of fiscal 2026. The company also raised its fiscal 2026 revenue forecast to $6.42 billion and expects fiscal fourth-quarter revenue of $1.75 billion, plus or minus $50 million. Smith said that backlog now stretches into fiscal 2028, and that customers have extended their commitments through 2029.

What holds sales back is parts, not demand. Graff said component shortages across the industry are unlikely to ease before fiscal 2028, so Ciena has locked in key components through 2029. For fiscal 2027, he gave an early outlook of revenue growth of at least 30%, and said the company will update it with its next quarterly results.

Two Customers Make Up Much of Sales

Few buyers drive this growth, and two customers each accounted for more than 10% of revenue last quarter, together 41.7%, according to Ciena’s earnings release. A pause in orders from either one would hit a large part of sales. Investors who want data center exposure spread across more names can see our ranking of 15 Best Data Center Stocks to Buy and Hold for the Next Decade.

Locking in supply also takes cash up front. Graff said cash from operations is expected to decline in the fiscal fourth quarter because of payments under those component agreements. Those payments arrive before the sales they support.

What the Current Price Assumes

At about 47.7 times estimated fiscal 2026 adjusted earnings, the stock sits well above a sector median of about 21.5 and above its own five-year average of about 33.3. Analysts expect earnings per share to rise 171.43% for the same fiscal year, which explains much of the premium. If you’re looking for cheaper AI stocks, check out 10 Undervalued AI Stocks to Buy Now.

But growth that large comes off a small base. Adjusted earnings were $0.67 a share in the year-ago quarter and $2.11 last quarter, and the five-year record shows how uneven that path has been. The multiple also rests on adjusted figures, and Ciena’s per-share earnings under standard accounting rules were lower last quarter. If you own the shares, you are paying for the faster business.

Ciena’s boom looks better supported than most equipment cycles, with a backlog that runs into fiscal 2028 and parts already secured. But a multiple above its own history needs growth of 30% or more to carry into fiscal 2027, and the company has offered only an early view of that year. Its next report will update that outlook and show whether the backlog passed the mark management has set.

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This article is originally published at Insider Monkey.