The potential return doesn't justify the risk. If Ciena can demonstrate significantly improved operating margins while growing market share with carriers such as AT&T (T) and Verizon (VZ - Get Report) then I might change my mind.
On that note, if there is one for Ciena to be optimistic about, it is that carrier spending will soon return. The group, which includes (among others) Comcast (CMCSA - Get Report) and the aforementioned AT&T and Verizon, have not opened their wallets to spend as expected. At least not according to their long term needs. One has to wonder that at some point they will and Ciena stands to see a significant portion of that revenue.
That said, investors have to wonder what Ciena intends to do about its massive pile of $1.4 billion in convertible debt -- one that has the potential to translate into 55 million additional shares.
Also, I wonder if management will be able to overcome the product roll-out challenges it faced in the recent quarter. If and when Ciena's customers are able to spend, will it have sufficient supply to fill demand or will rivals such as Alcatel-Lucent (ALU) or even a more prominent name such as Cisco step in and deliver where Ciena can't.
Bottom LineA lot has to happen for Ciena to be considered a true turnaround candidate. It needs to show that it can innovate and leverage its existing technological advantage to fight off competition and added pricing pressure. What's more, with so much R&D spending of late, the company needs to show investors the fruits of their support. But until then, I don't see how this stock makes sense right here. At the time of publication, the author held no position in any of the stocks mentioned. Follow @rsaintvilus This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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