Why NeoPhotonics Corporation Fell 35% on Friday

Image source: NeoPhotonics.

What: Shares of NeoPhotonics took a nosedive on Friday, sinking about 35% lower in the early morning and staying down all day. After this plunge, NeoPhotonics shares are trading at approximately half the 52-week highs that were set in the middle of June, but also 160% above lows recorded 12 months ago.

So what: In a second-quarter report filed Thursday night, the maker of high-speed optoelectronic components chiefly used in fiber-optic networking equipment exceeded analyst estimates but offered disappointing guidance for the next quarter.

The company delivered adjusted earnings of $0.14 per diluted share, up from a $0.30 loss per share in the year-ago period and slightly ahead of Wall Street's $0.12 projections. Sales rose 25% year over year to $85.4 million, a hair above the $85.3 million analyst consensus.

Looking ahead, NeoPhotonics sketched out third-quarter revenue near $80 million and adjusted earnings of roughly $0.05 per share. Both of these projections were far below Wall Street's consensus targets of $87 million and $0.13 per share, respectively.

Now what: That weak third-quarter view was based on timing issues that may push some large orders for 100-gigabyte networking components into the fourth quarter. NeoPhotonics CEO Tim Jenks discussed this issue on a conference call with analysts, explaining that mobile networks in China are embarking on multi-year network builds but didn't have any pressing need for optical components in the third quarter.

These comments match up with recent results and market analysis by sector peer Oclaro, with the exception that this rival reported steady short-term order flows and has enjoyed a 24% gain since publishing that report.

In that light, the pressure on NeoPhotonics' third-quarter business may well be temporary, leading into a stronger fourth quarter. The company has consistently delivered on its promises in the past year, breaking a far less reliable long-term trend.

Recent price moves leave plenty of room both to the upside and the downside here. The stock is not spring-loaded for a massive bounce, nor climbing into nosebleed valuations. So where are these shares going next?

The key question that must be answered here is, will this prove to be the old NeoPhotonics showing its disappointing face again, or the new and improved one simply asking investors for patience in the third quarter? Only time will truly tell, but I'll say that industry trends seem to back up what NeoPhotonics' management is saying.

The article Why NeoPhotonics Corporation Fell 35% on Friday originally appeared on Fool.com.

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.