Shares of Acacia Communications (ACIA) have been strong performers lately, with the stock up 3.7% over the past month. The stock hit a new 52-week high of $67.99 in the previous session. Acacia Communications has gained 77.2% since the start of the year compared to the 27.9% move for the Zacks Computer and Technology sector and the 14.8% return for the Zacks Communication - Components industry.
What's Driving the Outperformance?
The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on October 30, 2019, Acacia Communications, Inc. reported EPS of $0.6 versus consensus estimate of $0.42 while it beat the consensus revenue estimate by 2.97%.
For the current fiscal year, Acacia Communications, Inc. is expected to post earnings of $2.01 per share on $458.54 million in revenues. This represents a 133.72% change in EPS on a 34.91% change in revenues. For the next fiscal year, the company is expected to earn $2.33 per share on $527.44 million in revenues. This represents a year-over-year change of 15.92% and 15.03%, respectively.
Acacia Communications, Inc. may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.
Acacia Communications, Inc. has a Value Score of C. The stock's Growth and Momentum Scores are A and A, respectively, giving the company a VGM Score of B.
In terms of its value breakdown, the stock currently trades at 33.5X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 136.1X versus its peer group's average of 16.8X. Additionally, the stock has a PEG ratio of 1.67. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Acacia Communications, Inc. currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Acacia Communications, Inc. meets the list of requirements. Thus, it seems as though Acacia Communications, Inc. shares could have a bit more room to run in the near term.
How Does Acacia Communications, Inc. Stack Up to the Competition?
Shares of Acacia Communications, Inc. have been moving higher, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also solid potential picks, including Communications Systems (JCS), NeoPhotonics (NPTN), and PC-Tel (PCTI), all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.
However, it is worth noting that the Zacks Industry Rank for this group is in the bottom half of the ranking, so it isn't all good news for Acacia Communications, Inc. Still, the fundamentals for Acacia Communications, Inc. are promising, and it still has potential despite being at a 52-week high.
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