What happened

Applied Optoelectronics (NASDAQ:AAOI) announced fourth-quarter results Wednesday night, reporting a mixed performance with a side of weak revenue guidance for the next quarter. As of 11:45 a.m. EST, the stock had plunged 23.3% in reaction to the news.

So what

The maker of optical networking components and products saw fourth-quarter sales fall 6% year over year to land at $79.9 million. On the bottom line, adjusted earnings rose 6% to $0.89 per diluted share. Your average Wall Street analyst was looking for earnings of $0.83 per share on sales near $85.5 million. Looking ahead, the company said first-quarter revenue should be approximately $69 million. Here, analysts had expected something more like $87.2 million.

A bundle of fiber-optic cables in front of stormy skies and a lightning bolt.

Image source: Getty Images.

Now what

Thompson Lin, Applied Optoelectronics' CEO, kept a stiff upper lip. In his prepared remarks, Lin highlighted the company's ability to deliver strong profits even if sales came in below expectations. He also said that the second half of 2018 should see a significant upswing as the usual seasonality plays out and major data center clients work out their implementation plans for Applied Optoelectronics' next-generation networking tools.

All of this sounds reasonable enough, but the company has overpromised and underdelivered before. I'm convinced that a turnaround is coming, because we're still talking about a leader in a market with decades of strong demand still ahead. Networking needs won't go away anytime soon, after all. I'm just not entirely sure whether Lin's short-term projections are correct or not. So today's market reaction may be a tad overdone, but it's probably a move in the right direction for all but the most long-term investors in optical networking stocks.

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.