Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Applied Optoelectronics ( AAOI) as a weak on high relative volume candidate. In addition to specific proprietary factors, Trade-Ideas identified Applied Optoelectronics as such a stock due to the following factors:

  • AAOI has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $3.3 million.
  • AAOI has traded 53,363 shares today.
  • AAOI is trading at 2.69 times the normal volume for the stock at this time of day.
  • AAOI is trading at a new low 3.45% below yesterday's close.

'Weak on High Relative Volume' stocks are worth watching because major volume moves tend to indicate underlying activity such as material stock news, analyst downgrades, insider selling, selling from 'superinvestors,' or that hedge funds and traders are piling out of a stock ahead of a catalyst. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize (or avoid losses by trimming weak positions). In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on AAOI:

Applied Optoelectronics, Inc. designs and manufactures optical communications products for cable television (CATV), fiber-to-the-home (FTTH), and Internet data centers. AAOI has a PE ratio of 2.9. Currently there are 4 analysts that rate Applied Optoelectronics a buy, no analysts rate it a sell, and none rate it a hold.

The average volume for Applied Optoelectronics has been 394,000 shares per day over the past 30 days. Applied Optoelectronics has a market cap of $144.9 million and is part of the technology sector and electronics industry. Shares are down 32.6% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Applied Optoelectronics as a sell. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • AAOI's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 37.13%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
  • Compared to other companies in the Communications Equipment industry and the overall market, APPLIED OPTOELECTRONICS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • 37.57% is the gross profit margin for APPLIED OPTOELECTRONICS INC which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, AAOI's net profit margin of 4.31% significantly trails the industry average.
  • Net operating cash flow has improved to $0.70 million from having none in the same quarter last year. Since the company had no net operating cash flow for the prior period, we cannot calculate a percent change in order to compare its growth rate with that of its industry average.
  • Although AAOI's debt-to-equity ratio of 0.22 is very low, it is currently higher than that of the industry average. To add to this, AAOI has a quick ratio of 1.84, which demonstrates the ability of the company to cover short-term liquidity needs.

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