What happened

Shares of Applied Optoelectronics Inc. (NASDAQ:AAOI) were down 10.3% as of 3:15 p.m. EDT Thursday after an analyst downgraded shares of the fiber-optic networking products specialist.

More specifically, Loop Capital Markets analyst James Kisner reduced his rating on Applied Optoelectronics to sell from hold and simultaneously slashed his per-share price target on the stock to $20 from $45. For perspective, shares closed yesterday at $31.34.

Colorful close-up of fiber-optic cables with light shining through the tips


So what

To explain his bearish shift, Kisner asserted that quality-control issues for laser components within certain of Applied Optoelectronics' transceiver products could negatively impact both gross margins and its market share going forward. In addition, Kisner cited an increasingly difficult industry pricing environment for those products relative to his firm's previous expectations.

Now what

It likely doesn't help that Kisner isn't the only analyst to voice concerns for the optical industry and Applied Optoelectronics, in particular. Shares also plunged earlier this month after B. Riley's Dave Kang not only worried that demand for some AAOI optical products "has become choppy," but also warned that recently proposed  tariffs could result in project delays from certain customers.

In any case, with shares still reeling from that earlier downgrade but trading well above their 52-week lows set in April, it's hard to blame investors for taking another step back from Applied Optoelectronics stock today.

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.