What happened

Shares of Applied Optoelectronics (AAOI -3.35%) fell 22.3% in February, according to data from S&P Global Market Intelligence. The vertically integrated maker of fiber-optic networking products, ranging from laser chips and components to turnkey systems, bucked the positive trend of many other stocks in the same sector due to a couple of pessimistic analyst notes and an unwelcome convertible-debt offering.

So what

On Feb. 12, analyst firm Rosenblatt lowered its price target on Applied Optoelectronics from $15 to $10 per share while holding firm on its sell rating. Rosenblatt analyst Jun Zhang said that the company appears to be losing market share in the crucial Facebook (META -0.93%) account.

Two weeks later, a disappointing fourth-quarter report fell short of analyst targets across the board, alongside pessimistic first-quarter guidance. The next day, a handful of formerly bullish analysts downgraded the stock to a hold. D.A. Davidson's Mark Kelleher thinks it will take "at least a couple of quarters" to overcome current roadblocks such as poor visibility in China and limited capacity on Applied Opto's manufacturing lines.

The month ended with another sharp drop when the company proposed a $70 million batch of fresh convertible debt, or $77 million if the underwriters make full use of their overallotment options.

Check out the latest earnings call transcripts for Applied Optoelectronics and Facebook.

A bundle of fiber-optic cables, set against dark clouds and lightning bolts.

Image source: Getty Images.

Now what

Applied Optoelectronics is doubling its debt load while knee-deep in soft sales and unpredictable short-term business prospects. It's no surprise to see the stock falling hard against this backdrop. The new debt offering, in particular, smacks of desperation.

I'm not ready to give up on my bullish CAPScall on this stock quite yet, but shareholders should keep a close eye on the Facebook situation above all else.