Why Finisar Corporation Shares Got Crushed

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of fiber optic components technologist Finisar Corporation (NASDAQ: FNSR  ) plummeted 22% today after its quarterly results and guidance disappointed Wall Street.

So what: The stock has held up nicely in recent weeks on optimism heading into the quarter, but Finisar's Q4 miss -- adjusted EPS of $0.36 versus the consensus of $0.38 -- coupled with downbeat guidance is forcing Mr. Market to quickly sober up. While quarterly revenue surged 26%, gross margin fell 420 basis points over the year-ago period to 31.7%, triggering plenty of concern among analysts over its product mix and competitive position going forward.

Now what: Management now sees Q1 EPS of between $0.30 and $0.34, well below the average analyst estimate of $0.41. "We continue to develop and release new products, which we expect will enable Finisar to expand our market share and continue to grow revenue," CEO Eitan Gertel reassured investors. More importantly, with Finisar continuing to sport a cash-rich balance sheet and beaten-down stock price -- now off more than 30% from its 52-week highs -- the downside might be limited enough to bet on that bullishness. 

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