What happened

Shares of NeoPhotonics (NYSE:NPTN) fell as much as 14.3% on Wednesday morning, hamstrung by an analyst downgrade. By 2:45 p.m. EDT, the maker of optoelectronic components and modules used in high-speed networking equipment had recovered somewhat to an 11.4% drop.

So what

B. Riley analyst David Kang downgraded NeoPhotonics from buy to neutral, setting his price target at $6.50 per share. Kang cited an uncomfortably high valuation and business uncertainty regarding the ban on doing business with China-based customer Huawei. The stock now trades at 66 times forward earnings.

A bundle of fiber-optic network fibers, lit up in white against a black backdrop.

Image source: Getty Images.

Now what

The same analyst firm has a history of moving NeoPhotonics' share prices both up and down. Huawei has been NeoPhotonics' largest customer for years. In 2018, the company accounted for 46% of NeoPhotonics' total sales.

The longer the U.S. government blocks American companies from selling components to this giant of both mobile devices and telecom equipment, the deeper the wounds will run in NeoPhotonics' long-term business prospects. It's no surprise to see investors taking a step back on this chilling reminder from B. Riley.

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.