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.

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