AAOI: Fool Me Twice? Ignore The Hype, Wait For Trust (PT $24.50)The recent run up in AAOI stock price is a familiar story if you've been tracking or involved in the company since last year. What was once a glorious shining star from a parabolic blowout, quickly became a bubble of sorts and collapsed. The stock is tainted because of leadership's comments and weak guidance last quarter. The only reason to run the stock up is to profit and then watch it come back down, which I believe it most likely will. This is a volatile market full of excuses to bring any and all names down and AAOI is a very, very easy target.
I personally took a $70k loss last quarter on an investment I started back on 9/19/2017. I'd averaged down and waited for news and the tide to turn. A nice chunk of my portfolio ended up being allocated within the position, so it was dead money just sitting there for over 4 months. I think the company's technology, manufacturing capabilities and products (margins) are phenomenal. I think their execution to leverage their strengths and positions within the industry, plus their credibility, are found wanting though, and that's the real killer holding the stock back.
AAOI was dead money until the recent run-up. It's not going to grow back into the $40s without some serious and flawless momentum. You have an insanely high amount of short interest always playing against you. No matter what gains the price makes, they'll bring it back down. On top of that, ANY bad news will just send the stock down even further. It's already hit the mid $20s. People have been calling for prices into the teens without hesitation. I'm inclined to believe they'll push it down there if they want to on a bad, upcoming call.
The volatility in both the price and management's lack of transparency is not good for anyone seeking stability or trying to recoup money lost within the stock. Again, any good news will be processed and then cast aside because of the short interest. Any bad news will be magnified and blow the price down. Management made some really weird comments in their last call that make the specter of dishonesty rear its head. A lot of people already don't trust what they say, so you're playing against that as well. Leadership in ANYTHING has to be solid for any entity to move forward.When that starts getting questioned, it does not bode well for results or for participants.
Guidance for Q1 was terrible. Almost all the commentary and other positive catalysts for the company are taking place in the second half of 2018. June is about where the stock will finally start to test whether it can go back up, and that's assuming nothing crazy or weird hits the company again. My thoughts are that this quarter will meet expectations and guide for some growth, but it will only keep the stock back in the $30s. Anything less and it'll be back down to $24.50, maybe less if sh*t hits the fan. The short interest is just so brutal and easy for people to hold down that it's a struggle. If the stock starts to rebound, stabilize and hold, positive news starts rolling in (FB extends their contract into Year 2) and the short interest starts to decrease after June, I'll look at possibly buying again. That's a ton of 'ifs' and a great company shouldn't have to instill that kind of hesitation in investors.
It'll be another year before the stock even tries touching back to the $40s or $50s. Management has to rebuild trust, their execution has to blow the competition away and they have to chase out the massive short interest. Please be careful with this one. The risk is extremely high. Don't bother "hoping" for some quick cash. Find the stability and begin a position then if guidance is promising.
