360 Degrees of Finisar

Editor's Note: TheStreet.com has always believed that offering a wide variety of opinions and viewpoints -- rather than a monolithic "house view" -- helps readers make better investment decisions. In that spirit, we bring you "360 Degrees."

This weekly feature is designed to take advantage of our stable of reporters and contributors, who will offer analysis of specific stocks from all angles -- fundamental vs. technical, short-term trader vs. long-term investor.

Today's subject, chosen by readers in a poll last week, is Finisar (FNSR).

Click on the following link for information about a free trial to RealMoney.com.

Stay Away From a Cyclical Play, by Steven Bulwa

Finisar, like other optical-component makers, has seen its shares skyrocket this year. It hit a low under $1 last August and has since more than quadrupled to $5. It is a bit of déjà vu all over again, as investors keep returning to this familiar group of names because of increased demand from telephone companies, which are rolling out "fiber to the premises" (FTTP) to offer products like video, raising the stakes in their battle against cable companies.

To the company's credit, it raised guidance in March and should return to profitability this year. Estimates are for a 20% increase in revenue next year. This is a better forecast than many of its peers -- JDS Uniphase (JDSU) is looking for revenue growth of 12% and Avanex (AVNX) around 16%. Trouble is, the P/Es for these companies are still very high and the P/S multiples for cyclical component suppliers are also on the high side, around 5.

I wouldn't buy any of these stocks, especially given the significant recent increases in their stock prices. This is likely another short-term demand spike in a terminally cyclical sector. Prior to this year, Finisar had negative earnings for five straight years. I would be much more inclined to seek out a true growth story than try to decipher at what point in the cycle we are with these optical players.

Churning Would Be a Healthy Sign, by Dan Fitzpatrick

There is no denying the uptrend in Finisar. The stock has more than doubled this year, yet we've seen only a minimal pullback. At the same time, RSI remains at an extreme level. We see this persistent overbought character in very strong stocks.

The healthiest thing for bulls would be additional churning at this level, because it would indicate that demand for the stock is sufficiently strong to soak up all of the selling by holders who want to book profits. A close above $5 is indicative of strong demand, even at this relatively high price. That's why I'd be a buyer on a close above $5.

However, if the stock falls beneath the April low of around $4.25, I'd sell.

The Good and Bad Sides of Momentum, by Cody Willard

Finisar's finally turned the corner and become profitable. The company's got momentum now and the demand for many of its lines is strong and growing.

I've owned Finisar for a long time, and though I've sold it down pretty sharply since it got up around the $5 level, I remain bullish and long the name long term. In the near term, though, I think there are too many momo and fast-money longs, making this stock awfully tricky for now. Time frames matter.

>To order reprints of this article, click here: Reprints