Please ensure Javascript is enabled for purposes of website accessibility

Why NeoPhotonics Corp Shares Jumped Today

By Jeremy Bowman – Jul 25, 2016 at 2:42PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A bullish industry note pushed the fiberoptics specialist to near 52-week highs.

Image Source: NeoPhotonics.

What: Shares of NeoPhotonics Corp (NPTN) were surging Monday alongside other fiber optics technology specialists including Lumentum Holdings (LITE 7.76%) on a bullish industry note from analyst firm Needham & Co. As of 1:04 p.m. EDT, NeoPhotonics shares were up 17%.

So what: The Needham analysts said they saw a "mega cycle" coming in fiber optics networking, adding that the rise of China, metropolitan networking market, and data center proliferation in cloud computing would contribute to a boom in demand.

The analysts noted that the "bulk of the optical components industry" is sold out already, meaning the spike in demand should propel a significant increase in orders.

Now what: Needham lifted its rating on the group of four stocks to Strong Buy, which also includes Infinera Corporation (INFN 13.15%) and Oclaro (OCLR) as Oclaro and Lumentum both rose about 8% on the upgrade.

Needham placed an $18 price target on NeoPhotonics, giving it an upside of nearly 40%. As the smallest company of the group, NeoPhotonics would seem to have the most to gain from a spike in demand, and after already beating estimates four quarters in a row, the upgrade bodes well for the company's growth. NeoPhotonics has historically been a volatile stock, but Needham makes a compelling case. While the triple-digit P/E  scare away some investors, the company's long-term prospects look strong.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Infinera. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

NeoPhotonics Stock Quote
Infinera Stock Quote
$7.23 (13.15%) $0.84
Oclaro Stock Quote
Lumentum Holdings Stock Quote
Lumentum Holdings
$55.71 (7.76%) $4.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.