Optical networking specialist Infinera (Nasdaq: INFN) is a strange bird. When the company reported earnings significantly above Street targets last Thursday, the stock hardly moved. Or, rather, the stock crashed, bounced, and ended up almost exactly where it had started in short order.
But today, with a weekend to digest or distort the news, the stock is swooning by 3% as the broader market marches onward and upward. That would make sense if archrivals Cisco Systems (Nasdaq: CSCO), Ciena (Nasdaq: CIEN), or Alcatel-Lucent (NYSE: ALU) had some horrific, sector-altering news over the weekend, but that's not the case at all, its rivals are mainly flat with only Ciena sitting slightly in the red as of this writing.
In the immortal words of Linda Perry: What's going on?
For one, Infinera is not consistently profitable. The $0.04 non-GAAP loss per share this quarter was smaller than expected, but the problem is that analysts expect losses from time to time. Stocks like that often bounce around the charts for no apparent reason as traders and investors both large and small re-evaluate their take on inconsistent results.
No, seasonality is not an acceptable excuse unless you're a holiday-bound retailer. Everyone else gets dinged in the market for a lack of steady profits, and that includes Infinera.
But if you're willing to look past the occasional bump and bruise, you should see that Infinera is on a very healthy track. Rolling margins have shown steady improvement since bottoming out at the end of 2009. The sales growth story is somewhat less clear-cut but still positive in a big way.
With a five-star CAPS rating (out of five) and thumbs-up votes from 98% of more than 1,600 players, Infinera is the most respected stock in the high-speed networking sector. The company has been a Rule Breaker since 2007, and the Fool owns shares through four different real-money portfolios. My own "outperform" call in CAPS is currently losing points, but I remain confident that Infinera will raise my all-star CAPS ranking over time.
There's a lot of love for this stock, and for good reason: Infinera is currently a cheap way to give your portfolio exposure to larger networking trends. In the long run, Infinera is a play on the higher bandwidth demands imposed by ever-expanding mobile networking traffic and increased use of cloud computing.
While Mr. Market waits for Infinera's rolling earnings to turn reliably positive, you can see these low prices as a tremendous buy-in opportunity.
