Tuesday, 30 May 2017

AAOI Would be $200 If It Was Valued Like NVDA

On May 6th we initiated a strong buy call on Applied Optoelectronics (AAOI) with our article "AAOI: Eight Reasons To Expect This Tech Unicorn To Double By The End Of 2017". In the three weeks since, the stock is well on its way to doubling as it has moved 26% from $55.96 to $70.48. Our follow up piece on May 10th called "Fund Buying And Short Interest Will Lead To A Massive Squeeze on AAOI" gives readers even more reason to be bullish on this great company. If you like our picks make sure to follow our blog by clicking the follow button on the top of the left hand panel. We are up to 216 followers despite the relatively few articles that we publish. We think this good growth in followers is indicative of people liking our picks and research.

NVIDIA Corporation (NVDA) is another company that has been on a tear lately. Its improved financial performance and rising stock price is due to the increase in demand for datacenters, much like it is for AAOI. NVDA's financial ratios according to Yahoo Finance can be seen here. AAOI's can be seen here.

While AAOI has been on a huge run, what investors must understand is that it is STILL undervalued. Look at this chart comparing NVDA to AAOI:

Using traditional valuation metrics, AAOI is two to five times undervalued relative to NVDA. AAOI's trailing P/E is 25 which is reasonable for a "normal" growth stock. However, this opportunity with the datacenters has been proven to be anything but normal. NVDA is trading at a trailing P/E of nearly 50 and it has a market cap of $86 billion compared to AAOI's which is just over $1 billion. The smaller company is usually valued at a more aggressive multiple to reflect the fact that its growth rate should be higher.

The forward P/E takes into account expected near-term growth and we see the difference is even more extreme. NVDA's forward P/E is 42 while AAOI's is a bargain basement 14, meaning that AAOI is three times as undervalued. Judging by forward P/E, AAOI's stock price should be $210 to be comparable to NVDA. The PEG ratio takes into account expect 5-year growth. This shows the most extreme difference between the two companies with AAOI being nearly five times undervalued versus NVDA with a fair stock price being $320. The revenue multiple and price to book value also shows that AAOI is nearly three times undervalued compared to NVDA.

If we average these five figures, AAOI would deserve a stock price of $211.72 just to come in line with NVDA's valuation. AAOI is a highly undervalued stock and it has a lot more room to move. Never mind $100 which was our original target and the target of analysts, AAOI deserves to be $200 when compared to the other hot stock in the datacenter industry.

Disclosure: We are long AAOI

If you are interested in penny stock picks, check out Microcap Millionaires.

If you're interested in trading options, both, calls and puts on some large cap stocks, check out binaryoptionsprosignals.com.

Learn to trade stocks, options, commodities and forex with Trader Review.

If you are interested in dividend stocks and return analysis, Then dividendstocksonline.com or Dividend Stocks Rock are for you.

If you're interested in gold, this WSW special report or the Goldmasterinvesting.com Ocean Of Gold Report are for you.

No comments:

Post a Comment