What happened
Optical networking investors had it rough in November. Shares of Oclaro (OCLR +0.00%) fell 13.9%, Lumentum Holdings (LITE +0.25%) dropped 14.4%, and Finisar (FNSR +0.00%) stock took a 15% haircut, according to data from S&P Global Market Intelligence. All of these plunged in unison, right at the start of the month.
So what
Two of these companies reported earnings at the start of November. They sang slightly different songs, but certainly in the same key:
- Optical-components maker Oclaro reported second-quarter earnings of $0.20 per share on sales of $155.6 million, ahead of Wall Street's projections on both counts. The company set its next-quarter revenue guidance below the Street view at the time.
- Fellow components specialist Lumentum, which also makes lasers used in industrial manufacturing tools, saw first-quarter earnings of $0.43 per share and top-line sales of $243.2 million. Here, analysts had been looking for stronger results on both counts -- but Lumentum's guidance exceeded the prevailing analyst consensus across the board.
- Optical components and modules maker Finisar had no news of its own that day, but plunged based on the mixed tidings of its peers. When this company reported second-quarter results in early December, it beat the Street's revenue target but missed on the bottom line. Guidance for both earnings and revenue fell below current analyst projections.
Patience, young grasshopper. Image source: Getty Images.
Finisar shares plunged 19.5% lower in the first two days of November. Lumentum's stock slid 7% lower over the same period, and Oclaro investors suffered a 28% setback.
Now what
The optical networking industry is waiting for another round of infrastructure upgrades in telecom and cable systems around the world. The cable industry has started to roll out DOCSIS 3.1 systems, and wireless telecoms are putting the finishing touches on their 5G system standards. These upgrades will require a ton of fiber-optic networking muscle behind the scenes, and there's plenty of room for several successful suppliers of lasers, transceivers, and other optical components.
That being said, this sector isn't exactly an even playing field. Some companies are better equipped to wait for a revival than others, and some analysts are looking for consolidations where the winners buy up their more cash-strapped peers at a deep discount.
Meanwhile, the stocks are trading at attractive prices. You can pick up shares of both Oclaro and Finisar for less than 9 times their respective trailing earnings today. You know that old adage about buying when there's blood in the streets? I think that applies to these stocks, right now.
