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Applied Optoelectronics, Inc. (NASDAQ:AAOI) shareholders should be happy to see the share price up 12% in the last month. But that hardly compensates for the shocking decline over the last twelve months. Specifically, the stock price nose-dived 80% in that time. Arguably, the recent bounce is to be expected after such a bad drop. The real question is whether the company can turn around its fortunes.
Applied Optoelectronics isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Applied Optoelectronics's revenue didn't grow at all in the last year. In fact, it fell 27%. That looks pretty grim, at a glance. The share price fall of 80% in a year tells the story. Holders should not lose the lesson: loss making companies should grow revenue. But markets do over-react, so there opportunity for investors who are willing to take the time to dig deeper and understand the business.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Take a more thorough look at Applied Optoelectronics's financial health with this free report on its balance sheet.
A Different Perspective
Applied Optoelectronics shareholders are down 80% for the year, but the market itself is up 7.1%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 15% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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