This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Finisar: Not Buying the Bulls

Instead, investors who hopped on the bandwagon were stuck with a stock that barely moved. So my hesitation with recommending the stock in July was based on fears that I was about to be fooled again. On the bright side, the company did grow revenue in this recent quarter by 9.3%, while earning 31 cents a share to meet Street expectations. Here again, however, for a stock that is trading at a price-to-earnings ratio of 83, which is more than 4 times that of rival Avago (AVGO), profits have to be better than meeting expectations to justify the premium.

When you consider that Avago posted a higher rate of sequential growth in the comparable quarter (15% vs. 9.3%), the valuation question for Finisar again comes into play. The good news for investors is that Finisar continues to build strong operating leverage. That non-GAAP gross margins expanded sequentially by 290 basis points serves as a perfect example.

What this tells me is that even in the face of stiff competition from the likes of JDS Uniphase (JDSU), Finisar management continues to make meaningful advancements in terms of customer loyalty. As the carrier spending environment continues to recover, keep an eye on to what lengths Finisar will go to preserve its strong margins. As evidenced by the better-than-expected guidance, the company appears poised to boost sales given its recent upgrade cycle.

For a company working hard to earn the Street's respect, Finisar's stock price and its high P/E suggests that it has the Street's attention. But the company is not out of the woods yet. As I've said, we've seen this pattern once or twice before. And with political wrangling in Washington, corporate budgets, on which this stock is trading, are anything but safe. I would tread cautiously here.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a co-founder of StockSaints.com where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.

His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.

His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
FNSR $21.26 0.00%
AAPL $127.60 0.00%
FB $83.09 0.00%
GOOG $535.38 0.00%
TSLA $205.27 0.00%

Markets

DOW 18,034.93 +208.63 1.17%
S&P 500 2,100.40 +19.22 0.92%
NASDAQ 4,994.6020 +62.7870 1.27%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs