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TheStreet Open House

Why Fabrinet (FN) Stock Is Slumping Today

Stocks in this article: FN

NEW YORK (TheStreet) -- Shares of Thailand-based Fabrinet (FN) are down by -18.08% to $14.54 in mid-afternoon trading on Monday, after the company announced its fourth quarter and fiscal 2014 earnings release would be delayed pending an internal investigation into its accounting practices.

The company, which provides advanced optical packaging and precision optical, electro-mechanical, and electronic manufacturing services to equipment manufacturers, said that during the fourth quarter 2014 it discovered accounting issues, and has launched an investigation to determine if the issues violate the company's accounting policies.

The SEC was also made aware of the accounting problem, the company said.

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Fabrinet was originally supposed to release its earnings results on today, but now says it will do so "as soon as practicable."

Separately, TheStreet Ratings team rates FABRINET as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate FABRINET (FN) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • FABRINET reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. During the past fiscal year, FABRINET turned its bottom line around by earning $1.98 versus -$1.65 in the prior year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electronic Equipment, Instruments & Components industry. The net income increased by 125.6% when compared to the same quarter one year prior, rising from $21.13 million to $47.66 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.8%. Since the same quarter one year prior, revenues slightly increased by 7.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • FN's debt-to-equity ratio is very low at 0.05 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 2.59, which clearly demonstrates the ability to cover short-term cash needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to the other companies in the Electronic Equipment, Instruments & Components industry and the overall market, FABRINET's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
  • You can view the full analysis from the report here: FN Ratings Report

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