Alliance Fiber Optic Products (AFOP) - Undervalued Micro Cap?
Alliance Fiber Optic Products (AFOP) designs and manufactures components used in the connection of optical fibers and optical fiber networking solutions. Today the stock fell 22.4% after reporting supposedly "disappointing" results.
Let's see what constitutes "disappointing" to Mr. Market: Year-over-year revenue increased 79%, net income (excluding one-time tax benefits in 4Q 2012) increased by 136%. Wow, what terrible results. Sell. SELL!
Some things to like about AFOP:
** The company is growing like nuts. Sales expanded 63% in 2013. In the first three quarters of 2013, the company produced $12.23 million in operating cash flow, compared to $9.34 million produced in all of fiscal 2012.
** Peter Chang -- founder of AFOP in 1995 -- serves as Chairman, CEO, and President. Chang is largest insider owner of the business, owning 2.13 million shares of the stock.
** Management expects sales to increase by at least 85% in the 1Q 2014. In other words, there are no signs the company's growth is slated to stop anytime soon.
** The stock is trading at a P/E just under 12.5. Are you kidding me?
** $46.68 million in cash with no debt.
** This is a tiny and, basically, unfollowed business. One lonely analyst follows the company (which has a market cap of just $221 million). That one analyst, for what it's worth, anticipates AFOP's earnings will grow 25% annually over the next five years.
All in all, AFOP is a business that is rapidly growing its top and bottom lines, shows no signs of letting up growth, has a strengthening balance sheet thanks to stellar cash flow production, and an active/experienced founder and leader. That's a lot to get for a P/E under 13.
I'll probably rate this an outperform on CAPS tomorrow. Micro caps can be tricky to evaluate (and very volatile, as AFOP's performance today demonstrates), but AFOP seems to have solid financial growth, involved management, and bright prospects trading at a very reasonable valuation.