Alliance Fiber Optic Products, Inc. (NASDAQ:AFOP)

CAPS Rating: 4 out of 5

The Company designs, manufactures and markets fiber optic components for communications equipment manufacturers.


Player Avatar TSIF (99.96) Submitted: 1/5/2011 5:07:46 PM : Underperform Start Price: $8.62 AFOP Score: +7.26

Alliance Fiber Optics Products, Inc is clearly a momentum stock and my downthumb started as a limit order that was only intended as a bookmark while I did some more research.

I start a limit order, usually one with no chance of kicking and I get back to it after more DD and close the limit order, leaving the equity alone, adjust the limit order to kick in at a more likely level as either an up or down thumb. In this case Alliance Fiber kicked in on me before I was done with my DD.

Now that it's kicked in, subsequent research indicates that in an upward market Alliance Fiber may continue drifting slightly higher, but overall I still think it will retrace some of it's recent gains. Alliance Fiber Optics is a 3 bagger over the last year, hit a double in the last 10 weeks, but I'm more inteested in the gain the last 4 days of 25% on no new news.

I like to look at high flyers and see if:

1. I can learn anything from them that might help me spot a future high flyer.
2. Does it have more to run.
3. Is it over inflated and due to fall.

The items of note on Alliance Fiber are that it has been rapidly increasing revenue and seems to be benefiting from the extensive fiber optic network that needs maintained and updated. Increasing share price has been partially offset by an increase in both sales and margins.

Prior to a 1:5 reverse stock split Alliance Fiber was a $.50 to $1.80 with less than a 20,000 share daily volume. This week it averaged nearly half a million shares traded on a relatively low float after the reverse split.

Are institutional investors driving it up now that it's above their usual threshholds? Will volume continue?? I think I'm safe for now on my downthumb, but I'm often burned on momemtum plays. My feeling of safety comes from the my experienes that high flyer equities have a solid majority of investors with a very respectable paper profit. A slight selloff will cause their excitement to turn to protection and selling usually cascades. Of course if institutional investors are waiting in the wings, they could turn that curve back the other direction.

Overall, an interesting company on a tear, no debt, reasonable P/B. Despite my best efforts, I can't find much not to like and sometimes a huge spike in an equity is the market catching up on an equity left behind. In this case it could also be the skeptics who can't believe a company can come out of nowhere to such heights without a serious correction. IF there is anything to dislike it would be Alliance Fiber's customer concentration being too thin. I don't know who their two 16% each clients are, but if either slowed their buildout or switched suppliers it would be a substantial hit.

Down for now to live with the hand I dealt myself.

Report this Post 2 Replies
Member Avatar ikkyu2 (99.13) Submitted: 2/28/2011 1:16:01 AM
Recs: 1

Interesting pitch. Thanks.

Member Avatar TSIF (99.96) Submitted: 2/28/2011 5:28:30 PM
Recs: 2

Thanks, I got out of this call, but CAPs will almost always leave a "top" up or down pitch on the page until someone rec's another one. I haven't seen to many down pitches to rec on this one, it seems to be popular.

The retrace from the $19.49 down to $12.64 the last 30 days was a bit steep, but common when expectations get too far ahead of reality for high flyers that haven't built a base or investor loyalty. Shorts are pretty much gone and the float remains low. I could see a base forming at this level until next earnings. If they can meet expectations it might be up again from here. Risk appears more acceptable. Good luck on your call!

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