This Stock’s Money In The Bank

| August 12, 2010 | 0 Comments

Climb aboard the Oplink (OPLK) express.

Shares of this optical networking component provider are on fire!  The company recently reported blowout earnings.  And management provided upbeat guidance for the next quarter.

I’ll give you the full rundown in a moment.

You might recall I first wrote about this company in late June.  If you missed it, you can read my article, Grab Your Share Of This $169 Million Cash Hoard, for all the details.

Since then, the shares are up an impressive 23%.

Not a bad return in just two months.  Especially compared to the Nasdaq Composite.  The tech heavy index is down 2% over the same period.

Why the huge discrepancy?

Simply stated, demand for Oplink’s products is booming.

Oplink makes equipment for boosting wireless network capacity, speed, and performance.  And telecom companies can’t get enough of it.

Here’s why…

The smartphone revolution caught them off guard.  An ever growing number of smartphone users are draining capacity from existing networks.  And this is causing dropped calls and slower internet speeds.

Many smartphone customers are really frustrated.

They’ve spent hundreds of dollars on the latest and greatest smart-phones.  They’ve taken on expensive multi-year service contracts.  Then they find their expensive new smartphones drop calls and can’t surf the web.

This situation put telecoms in a real bind.

They have to upgrade their wireless networks right away… before they lose customers.  They desperately need equipment to increase network capacity and accelerate data transmission speeds.

In fact, telecoms plan on spending a whopping $57.8 billion on network equipment this year.

And Oplink is laughing all the way to the bank.

Check out their earnings for fiscal year 2010 (ended in June).

Net income surged 90% to $20.9 million.  Earnings soared an eye-popping 87% to $0.97 per share.  And earnings topped analysts’ estimates.

As you might imagine, Oplink shares soared on the news…

Take a close look at the chart.  You can see how the shares gapped up huge on August 3rd.  At one point, the shares traded as high as $19.27. That’s an intraday gain of 17%!

Best of all, Oplink is just getting started.

The outlook going forward is very bullish…

Management recently raised revenue and earnings guidance for next quarter.  And analysts have ratcheted FY 2011 revenue and earnings forecasts significantly higher.

See for yourself…

Analysts are now expecting a revenue jump of 44% to $200 million.  What’s more, they’re looking for earnings to rocket 65% to $1.60 a share.

Despite this terrific outlook, the shares are still badly misvalued.

At a recent price of $17.60, Oplink is trading at merely 11x the FY 2011 estimate of $1.60.  That’s an extremely low P/E for a company expected to grow earnings 30% a year.

In fact, it works out to a PEG ratio of just 0.37.

And you know what that means.  The shares are trading at a 63% discount to their projected growth rate.

Hard to believe, right?

No doubt about it, Oplink shares have big upside potential.  I can see the shares trading up to at least $25 and maybe jumping as high as $30 in the next year.

What an opportunity!

If you missed Oplink the first time, you now have another chance to grab shares at a discount.  The stock’s pulling back with the overall market.  Don’t let another golden opportunity pass you by.

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Category: Stocks

About the Author ()

Robert Morris is the editor of Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market’s next Blue Chips. The Wall Street veteran and small-cap stock specialist is also a regular contributor to Penny Stock Research. Every week, Robert shares his thoughts with our readers on a variety of penny stock-related topics. In addition to Penny Stock Research, Robert also writes frequently for two other free financial e-letters, ETF Trading Research and the Dynamic Wealth Report. He’s also the editor of two highly successful and popular investment advisories, Biotech SuperTrader and China Stock Insider.

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