Why Fabrinet Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Fabrinet (NYSE: FN  ) fell more than 10% during Tuesday's intraday trading after the company's released solid fiscal second quarter results, but followed with disappointing forward guidance. 

So what: Quarterly revenue rose 6.7% year over year to $178.6 million, which translated to 15.9% growth in adjusted net income to $16 million, or $0.45 per share. By comparison, analysts were expecting earnings of $0.41 per share on sales of $167.43 million.

For the current quarter, however, Fabrinet expects revenue to be in the range of $162 million to $166 million, with adjusted net income per share of $0.32 to $0.34. Analysts, on average, were modeling earnings of $0.39 per share on sales of $172.92 million.

Now what: During the subsequent earnings conference call, management blamed the guidance weakness largely on sequential declines in their optical business. At the same time, CEO David Mitchell did insist the weakness should prove temporary, and that they should return to sequential growth after the current quarter is finished.

But with shares trading at just 8.2 times last year's earnings, it appears the stock already reflects much of that pessimism. Assuming the current weakness isn't a pervasive long-term problem, then, I think Fabrinet stock could still prove a bargain for patient investors.

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