While the shares of this tech company have dropped on gross margin declines, this contributor thinks the pullback is an opportunity to buy low.
Finisar (FNSR)
from Top Stock Insights
Cisco’s 2013 VNI Mobile Forecast points to continued pressure on mobile device infrastructure:
Global mobile data traffic grew 81% in 2013; 526 billion mobile devices and connections were added in 2013. Average smartphone usage grew 50% in 2013. And in 2013, the number of mobile-connected tablets increased 2.2-fold, with each tablet generating 2.6-times more traffic than the average smartphone.
Cisco expects that in 2014, the number of mobile-connected devices exceeded the world’s population; global mobile data traffic will increase more than 10-times over the next 5 years; and over two-thirds of the world’s mobile data traffic will be video by 2018.
The data log jam is not just the result of more devices, but also the types of content users access, including video, texts, and web browsing.
A very simple way to invest in this trend is to purchase shares of companies that make the parts that go into next-generation telecom networks and data center cabling.
Finisar (FNSR) is the world’s largest supplier of optical solutions for the communications industry. I’ve been waiting patiently for Finisar to drop into the $20 range and it’s finally happened.
The company’s products are used in networking, wireless, storage, voice and cable TV applications. Its products lower the cost of optical gear used in data centers by reducing both size and power consumption. And they also improve networking speeds and help speed up file sharing, virtualization, cloud computing and mobile.
Because of the strength in datacom, FNSR has been enjoying gross margins in the 30% to 35% range, except in the quarter ending April 27, 2014, when gross margin fell to 31.7%. Even though revenue growth came in at 25.7% year-over-year, the market was rough on shares of Finisar, driving them down from $25 to just under $20. But net income was $0.27 per diluted share on a GAAP basis, which is just about equal to profits per share over each of the last four quarters.
Management explained the drop was due to annual price reductions as well as an acquisition of a lower profit company, u2t Photonics. After listening to the conference call and reading the report, I don’t believe there is a structural issue with this company, and I think FNSR still has a very bright future.
In its most recent quarter, revenue rose 7%, to $327.6 million, the 8th consecutive quarter it has increased, and grew 23%, year over year. Non-GAAP diluted EPS rose a penny, to $0.32.
Results were within the range management gave back in June. That doesn’t sound to me like a company in trouble.
With the stock trading in the $20 range and with a forward-PE of just under 12, I think this growth stock is in a good buy range.
The Apple iPhone 6 will be on shelves soon. And the fall is when new product launches for other manufacturer smartphones, tablets, wearables, and machine-to-machine networking gear all happens.
Let’s take advantage of the drop and buy Finisar.
Tyler Laundon and Ian Wyatt, Top Stock Insights, www.topstockinsights.com, 866-447-8625, August 26 and September 12, 2014