Year to date, shares of Acacia Communications (ACIA) are up 147%, but they would have been higher if not for the shellacking the stock took in the last month. After the company's IPO in May, the stock ran from $27 to as high as $128, only to fall 40% to the low $70s.
Back in September, I was bullish on Acacia, but I suggested investors wait for a pullback.
The stock was hurt by news of another company in the sector. On Oct. 26, long-haul optical maker Infinera (INFA) reported a terrible third quarter, and gave lower guidance for the fourth quarter. But Infinera has been having problems for a while. Infinera's second quarter was a mess too. Investors were hoping for revenue growth by the fourth quarter, but management said the turnaround would take longer and be more expensive than anyone had imagined. Investors were disappointed and dumped the entire optical group.
The next day, Acacia was hit by a report that its largest customer, Chinese telecom giant ZTE Kangxon, issued cautious guidance. In the first half of 2016, ZTE accounted for 38% of Acacia's revenue. At the end of the quarter, ZTE accounted for 63% of revenue.
On Nov. 10, Acacia said third-quarter fiscal 2016 earnings of $1.01 per share were 15 cents better than the consensus estimate. Revenue rose 106.8% to $135.3 million, vs. the consensus estimate of $132.7 million.
Management gave fourth-quarter guidance that caused investors to temper their enthusiasm for the stock. The company said it predicts fourth-quarter revenue of $136 million to $141 million, vs. the $138.9 million consensus. Investors were expecting more than an in-line fourth quarter.