Stock To Watch In 2017: Applied Optoelectronics, Inc. (AAOI)

(RTTNews) - We urge Investors to take advantage of the weakness in the shares of Applied Optoelectronics, Inc. (AAOI), as we believe the stock has at least 15% upside from current levels. The stock is down along with many of the stocks in the Fiber optical component universe with an exposure to China.

Fiber-optic component supplier Applied Optoelectronics Inc. (AAOI) is our triple-digit gainer, published on 'Short-Term Investor' on August 5, 2016 at an opening price of $14.66, after issuing upbeat third-quarter guidance. The stock touched a new intra-day high of $60.19 on March 27, 2017, representing 310.6% gain from our published price.

The stock featured on STI again on April 13, after announcing blowout Q1 preliminary results that beat its own expectations, as well as Street estimates. At the time we said "the stock has at least 25% upside from current levels." But, the stock beat our own expectations and climbed 52% to a new 52-week, intra-day high of $75.59 on June 6 from our published price of $49.85.

When the company released full first-quarter results on May 4, Dr. Thompson Lin, Applied Optoelectronics, Inc. founder, president and CEO, commented, "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."

Too much ado about slower demand in China has derailed the optical component sector. But, Optical analyst firm LightCounting has projected that the optics market will enjoy robust growth in 2017 even though many network operators are cutting capital expenditure.

LightCounting points out that this decline in capex started in 2016, which has turned out to be the best year for optical component sector. This shows that spending on optics can increase even as total capex declines, according to the research firm. LightCounting believes that a spike in demand for cloud data centre interconnect (DCI) applications will compensate for slower demand in China, keeping the DWDM market segment growing in 2017.

For the second quarter, Applied Optoelectronics is projecting revenues of $106 million to $112 million, and adjusted earnings of $1.09 to $1.19 per share. These numbers again are record high numbers for the company. We expect AAOI to beat expectations of analysts, who are modeling earnings of $1.14 per share on revenues of $110.25 million.

The stock is currently trading at $62.86, down $3.01.