What happened

Shares of NeoPhotonics Corp (NYSE:NPTN) finished up 18.1% today, overcoming an initially poor reaction to its earnings report, as it seemed to rally on general excitement in the fiber-optics industry and a potential short squeeze.

So what

Shares of the fiber-optics specialist opened down 13.5%, as investors were unhappy with the guidance in its fourth-quarter report.

For the past quarter, NeoPhotonics' numbers looked strong, as adjusted earnings per share came in at $0.13, better than estimates at $0.08, but down from $0.16 from a year ago. Meanwhile, revenue increased 23%, to $109.8 million, better than expectations at $108.5 million.

A satellite dish against a pale blue sky.

Image source: NeoPhotonics.

Still, the market was disappointed with first-quarter guidance that called for an adjusted net loss of -$0.20 to -$0.30 per share against expectations of a $0.05 per-share profit. Revenue of $67 million-$73 million was also well below estimates at $98.04 million, reflecting the sale of assets related to its low-speed product lines.

Despite that weakness, the stock surged through the morning as Piper Jaffray issued a bullish note, saying that the valuation was attractive at that point and explaining the sales slowdown as a pause in demand in China due to a delay in the upgrade of the China 100G product.

Also, fiber-optic stocks across the board rose as Lumentum Holdings got an upgrade from Jefferies. Short covering also seemed to be a factor in NeoPhotonics' surge today.

Now what  

Despite the stock's big gains, most analysts responded by lowering their price targets. Piper Jaffray lowered its target from $12.50 to $9, but maintained an overweight rating on the stock. Needham, meanwhile, dropped its price target from $17 to $13. 

The market seems to be ignoring the weak first-quarter guidance for now. That could prove to be a problem if delays in China persist, as investors can't count on short squeezes bailing them out every time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.