Infinera Is a Great Stock to Buy Now

Between 2011 and 2015, long-distance optical networking equipment maker Infinera (INFN) doubled annual revenues while maintaining gross margins at around 45%.

However, 2016 saw sales drop, sending the stock plummeting 53%.

The company's management guided that 2018 would bring strong revenue growth for Infinera.

The optical sector is a hive of possibilities. Companies such as Lumentum Holdings (LITE) , Oclaro (OCLR) , Ciena (CIEN) and Applied Optoelectronics (AAOI) are pushing the envelope and propelling long-term capabilities.

With steadily rising demand for faster internet, the long-term outlook for equipment makers like Infinera is extremely positive. In fact, the company serves several major players, including Facebook (FB) , Level 3 Communications (LVLT) , Liberty Global (LBTYA) (LILA) , CenturyLink (CTL) , Vodafone (VOD) and T-Mobile (TMUS) .

After a sluggish 2016, Infinera should mount recovery led by telecom and networking giants ready for the next wave of infrastructure upgrades.

The company smashed expectations for the fourth quarter, setting the stage for a stellar 2017 and an even better 2018. The stock is up 23% year to date.

Analysts are expecting $804 million in sales for fiscal 2017, with a nearly 16.5% leap to $936.4 million in 2018. The revenue dip in 2016 and 2017 is largely the result of product transitions. Management at Infinera expects that when it introduces next-generation products, earnings should rise in 2017 and in 2018.

Further, the massive explosion of bandwidth-heavy applications and devices, should position Infinera as a premier equipment provider. And there's also the game-changing Internet-of-Things (IoT).

Like many optics equipment investment opportunities, profitability isn't a primary focus right now. However, the company has outlined a number of long-term goals, including achieving 50% gross margins and an operating margin of 15%, which currently sits at -3%. Sustainable profits should start to come in as Infinera's next-generation equipment achieve sufficient market share.

Additionally, the company must balance technology investments with disciplined expense management. Based on fiscal 2018 sales estimates, Infinera trades at a price-to-sales ratio (P/S) of 1.8 times. This is a discount to rival Oclaro's 3.06 P/S ratio.

While there could be customer level pricing challenges and emerging competition from China, Infinera, is well-positioned to capitalize on the infrastructure boom.

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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

Action Alerts PLUS, which Cramer manages as a charitable trust, is long FB.

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