What happened

Shares of Applied Optoelectronics (NASDAQ:AAOI) gained 46.3% in May, according to data from S&P Global Market Intelligence. The optical networking specialist's stock traded modestly higher until the very end of the month, when a pair of rosy analyst notes unlocked a 31% price surge in the last two days of May.

So what

Analyst firms D.A. Davidson and Raymond James agreed that Applied Optoelectronics looked way too cheap at the end of May. Davidson's Mark Kelleher argued that the company holds a significant competitive advantage by virtue of its long business history and technically difficult manufacturing operations. Raymond James analyst Simon Leopold said that fears of competitive threats were "exaggerated" and that the optical networking market is healthy enough to support several big winners anyhow.

Applied Optoelectronics' corporate logo, purple on a grey gradient.

Image source: Applied Optoelectronics.

Now what

Wall Street isn't entirely sold on Applied Optoelectronics' sunny future. This week, analyst firm Rosenblatt downgraded the stock to a "sell," picking up the same competition fears that Davidson and James dismissed last month.

As always, the truth probably is somewhere between these extremes. The stock still looks cheap, trading at just 16 times trailing earnings and more than 50% below its yearly highs.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.