In this daily chart of FN, above, you can see the breakout to new highs for the year and move up in October. The On-Balance-Volume (OBV) line turned up nicely, confirming the rally and the trend-following Moving Average Convergence Divergence (MACD) oscillator is near the zero line, but "fading." There could be a short-term correction lower in FN, but I would consider it a buying opportunity. If prices dip into the $23 to $22 area, one could probe the long side of FN with a protective stop below $21.
This longer-term view of FN, above, shows that the recent breakout also cleared the highs of 2014. The 40-week moving average is pointed up, telling us that we are in an uptrend. The OBV line is rising, which is positive, along with the MACD oscillator. The strong, long-term view supports the short-term outlook, above. Our longer-term price outlook is a retest of the 2011 high near $30.
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 multiple strengths, 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 revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 1.0%. Since the same quarter one year prior, revenues rose by 14.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- FN's debt-to-equity ratio is very low at 0.08 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, FN has a quick ratio of 2.01, which demonstrates the ability of the company to cover short-term liquidity needs.
- Compared to its closing price of one year ago, FN's share price has jumped by 39.13%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, FN should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- FABRINET has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, FABRINET reported lower earnings of $1.21 versus $2.58 in the prior year. This year, the market expects an improvement in earnings ($1.84 versus $1.21).
- The gross profit margin for FABRINET is currently extremely low, coming in at 13.90%. Regardless of FN's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, FN's net profit margin of 0.74% is significantly lower than the industry average.
- You can view the full analysis from the report here: FN
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.