Why Lumentum Holdings Inc. Stock Dropped Today

By Markets Fool.com

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Image source: Getty Images.

What happened

Shares ofLumentum Holdings Inc. (NASDAQ: LITE) were falling today, continuing a slide that his hit several fiber-optic stocks over the last few session. Shares of the optics and photonics tech company finished down 10.3%.

LITE Price data by YCharts

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So what

For Lumentum, the sell-off began on Thursday, as its earnings report approached that night. On high trading volume, the stock fell 4.3% on Thursday and 3.9% on Friday, tracking with several of its peers.

Strangely, Lumentum delivered a strong earnings report, beating estimates on the top and bottom lines. Adjusted earnings per share increased from $0.41 to $0.49, better than estimates at $0.44, while revenue jumped 21.4% to $258.1 million, ahead of expectations at $251.2 million. CEO Alan Lowe said the company reported record revenue in the quarter and noted improved operating leverage and strong growth in all of the company's segments.

Now what

A number of factors seem to have contributed to the slide across industry stocks. Last week,Alphabet(NASDAQ: GOOG) (NASDAQ: GOOGL) announced that it will scale back expansion of its fiber-optic network Google Fiber and cut jobs. That news seemed to cool off hopes for one growth outlet in the industry. At the same time, a sales miss by Chinese telecom equipment maker ZTE was a negative for Acacia Communications(NASDAQ: ACIA), as ZTE is one of its biggest customers, and the merger ofCenturyLink andLevel 3 Communications is a sign of consolidation further down the supply chain, meaning negotiations could get tougher.

Within the fiber-optics industry,Infinera(NASDAQ: INFN) stock fell 14% on Friday on a weak outlook and as sales and earnings continue to slide. As for Lumentum, its outlook was modest considering the strong performance in the past quarter, as it sees EPS of $0.47-$0.55 and revenue of $258 million to $270 million. The midpoints of both of those ranges are below the analyst consensus, meaning the market could see growth declerating after a strong quarter.

That could be one reason for Lumentum's stumble. Another may just be a pullback on profit-taking in the industry, as fiber-optic stocks have had a blowout year -- Lumentum is still up 37% after the recent sell-off. Considering its strong sales momentum, that decline could offer an appealing entry point for the stock.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Infinera. 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.