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Why Infinera Stock Dropped 15.1% in March

Keith Noonan, The Motley Fool

What happened

Shares of Infinera (NASDAQ: INFN) fell 15.1% in March, according to data from S&P Global Market Intelligence . The fiber-optics company's stock has been prone to big swings and affected by the hostile trade climate between the U.S. and China, and it has traded down nearly 70% over the past three years. 

INFN Chart

INFN data by YCharts

Infinera published a press release on March 4 announcing that Oaktree Capital Management had agreed to extend the lock-up period on 10.5 million Infinera shares until April 1, 2020. It's not clear how much the lock-up extension played into the stock's sell-off early in the month, but the news did correspond with a significant pricing slide.

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Image source: Getty Images.

So what

Infinera stock gained roughly 16% in February following the release of the company's fourth-quarter results, and the fact that it didn't hold on to those gains in March despite momentum for the broader market signals that investors are still having trouble charting out what's next for the company. Lock-up expirations sometimes worry investors because they can flood the market with new shares for sale and drive down stock prices, but in this case, it appears an extension may have spooked investors. It's possible that shareholders interpreted the extension of the lockup of shares at Oaktree as a sign that Infinera wasn't comfortable with their hitting the market.

Infinera stock did see at least one positive pricing last month, as MKM Partners upgraded its rating on the stock from "neutral" to "buy" and set a $6 price target on the stock. That price target represents roughly 28.5% upside from Infinera's current share price. 

Now what

Infinera has seen some positive momentum in Feburary. Shares trade up roughly 8% in the month so far. 

INFN Chart

INFN data by YCharts

Recent comments from President Trump seem to suggest that a trade agreement could be reached with China sometime this year. While it's reasonable to expect there will be additional curve balls and roadblocks in the negotiations, Trump's statements suggest that some of the biggest problem points in the talks have been resolved. Infinera's business has been significantly affected by the recent tariff escalations, and it appears there could be some relief on that front in the not-too-distant future.

Infinera suffered a couple years of sales declines prior to 2018, but it looks like the business is picking back up and the top line is heading in the right direction again. The company could see substantial tailwinds stemming from the mass market roll out of 5G networks and expansion into more Tier-1 internet markets, but these opportunities have been slower to materialize than investors anticipated, and the company still has to figure out how to get its earnings and free cash flow into the black. 

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends Infinera. The Motley Fool has a disclosure policy.