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Why Optical Communications Stocks Popped on Monday

By Steve Symington - Updated May 23, 2017 at 9:41AM

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Several key players in the optical communications space skyrocketed yesterday. Here's what investors need to know.

What happened

Shares of several fiber-optic communications companies jumped at least 9% on Monday after analysts at Rosenblatt Securities said China Telecom (CHA) has started work on its Metro upgrade.

So what

Included among the biggest gainers as of 2:30 p.m. EDT yesterday were Oclaro (OCLR) (up 10.1%), Applied Optoelectronics (AAOI -7.66%) (up 12.1%), Finisar (FNSR) (up 10.3%), and Acacia Communications (ACIA) (up 10.7%) -- with all viewed by investors as possible beneficiaries of China's fiber network upgrade cycle.

Fiber optic cable closeup.

IMAGE SOURCE: GETTY IMAGES

Now what

The update shouldn't come as a complete surprise. Last Wednesday, Rosenblatt analyst Jun Zhang initiated coverage on Oclaro with a buy rating and $12-per-share price target -- a hefty premium to Oclaro's current price of $9.37 per share.

"We believe that China Mobile's Phase 12 60T procurement and China Telecom's Metro upgrade are likely to begin in June and September/October, respectively, which should help reignite industry demand and push OCLR back to its normal revenue levels by the end of this year," Zhang explained at the time. "We believe China's optical demand can resume its growth in 2018 with more metro-level upgrades."

In the end, if that prediction proves accurate, I suspect the recent gains enjoyed by investors in each of the above-mentioned optical communications companies could be just the beginning.

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Stocks Mentioned

Finisar Stock Quote
Finisar
FNSR
China Telecom Corporation Limited Stock Quote
China Telecom Corporation Limited
CHA
Oclaro, Inc. Stock Quote
Oclaro, Inc.
OCLR
Applied Optoelectronics, Inc. Stock Quote
Applied Optoelectronics, Inc.
AAOI
$2.29 (-7.66%) $0.19
Acacia Communications, Inc. Stock Quote
Acacia Communications, Inc.
ACIA

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

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