NEW YORK (TheStreet) -- In July, shortly after Finisar (FNSR) posted an unassuming fourth quarter report that capped a feeble fiscal year, I wasn't sure if it was the right time to buy the stock. Finisar's earnings results failed to spur my buying decision, though the better-than-expected numbers from Ciena (CIEN) were hard to ignore. Factoring the positive words from Cisco's (CSCO) CEO John Chambers, who hinted at a broad recovery in carrier spending, shares of Finisar immediately appeared undervalued.
While I've always wanted to like Finisar, jumping on the stock simply because of Ciena's and Cisco's confidence made little sense to me. Cisco's optimism, while encouraging, has very little to do with Finisar's business and any near-term value the company's management is able to harvest. And while Finisar has a decent lead in the optical components space, management has never demonstrated that it can reliably convert this type of advantage into significant free cash-flow. I didn't buy the stock. It's a decision I've come to regret.
Since the July article, not only have shares of Finisar soared more than 46%, the stock received an upgrade on Tuesday from Jefferies analyst James Kisner, who boosted his price target by $11 a share. Kisner cited (among other things) "demand for high-speed optical products will keep growing through 2014."
Kisner, whom I greatly respect, is being a bit too bullish. While some of these gains can be attributed to better outlook in enterprise spending, I don't believe that the extent of Finisar's 46% surge in only three months jibes with any real evidence that robust carrier spending will persist. Nor can we expect that this spending, should it return, will continue to outperform.I will grant that the overall telecom space seems healthier. It's also encouraging that the likes of AT&T (T) and Verizon (VZ) are committed to investing in 4G LTE (long-term evolution) technology. The problem is that the Street was just as eager about these prospects last December, suggesting that Finisar (and others) were poised to rebound on improved network expenditures. It never happened.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV