Bull of the Day: Alliance Fiber Optic (AFOP) - Bull of the Day
August 02 2013 - 3:45AM
Zacks
Alliance Fiber Optic Products (AFOP) 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.
![](http://staticzacks.net/images/zacks/blogs/1375382903_scaled_425.jpg)
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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