Please ensure Javascript is enabled for purposes of website accessibility

Why Fabrinet Shares Plunged

By Steve Symington – Feb 4, 2014 at 9:09PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is Fabrinet's drop meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Fabrinet (FN -0.75%) fell more than 10% during Tuesday's intraday trading after the company's released solid fiscal second quarter results, but followed with disappointing forward guidance. 

So what: Quarterly revenue rose 6.7% year over year to $178.6 million, which translated to 15.9% growth in adjusted net income to $16 million, or $0.45 per share. By comparison, analysts were expecting earnings of $0.41 per share on sales of $167.43 million.

For the current quarter, however, Fabrinet expects revenue to be in the range of $162 million to $166 million, with adjusted net income per share of $0.32 to $0.34. Analysts, on average, were modeling earnings of $0.39 per share on sales of $172.92 million.

Now what: During the subsequent earnings conference call, management blamed the guidance weakness largely on sequential declines in their optical business. At the same time, CEO David Mitchell did insist the weakness should prove temporary, and that they should return to sequential growth after the current quarter is finished.

But with shares trading at just 8.2 times last year's earnings, it appears the stock already reflects much of that pessimism. Assuming the current weakness isn't a pervasive long-term problem, then, I think Fabrinet stock could still prove a bargain for patient investors.

Steve Symington and The Motley Fool have no position in any of the stocks mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Fabrinet Stock Quote
Fabrinet
FN
$132.61 (-0.75%) $-1.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.