Here's Why Applied Optoelectronics, Inc. Shares Fell 14% Last Month

What happened

Shares of Applied Optoelectronics (NASDAQ: AAOI) fell 13.8% in February of 2018, according to data from S&P Global Market Intelligence. The maker of fiber-optic components and modules for use in high-speed networking equipment was having a modestly positive month until a mixed fourth-quarter report made its appearance. Share prices plunged 23% lower the next day alone.

So what

Applied Optoelectronics' (AOI) fourth-quarter sales fell 6% year over year, to land at $79.9 million, short of Wall Street's $85.8 million consensus estimate. Adjusted earnings increased 6%, to $0.89 per diluted share, above the Street view of $0.83 per share. But that wasn't all -- AOI's revenue guidance for the first quarter stopped at roughly $69 million, far below analysts' $87 million projections at the time.

Now what

The company works in a highly cyclical industry, where order volumes ebb and flow as the need for high-speed components varies. Over the last year or so, demand has been low, as telecoms around the world have been drawing up their plans for 5G wireless network builds, starting in the back half of 2018 and continuing over the next several years. It's similar to the time when the approaching hurricane Irma sucked all the water out of Tampa Bay for a couple of hours, right before the cyclone arrived to give all the missing water back -- with interest.

This is AOI's reverse storm surge, led by unusually low order volumes from largest customer (NASDAQ: AMZN). The e-commerce giant isn't planning any 5G wireless networks, but it's rebuilding its data center architecture around a new, faster generation of optical components. AOI is sure to benefit when Amazon steps back to the order window with a better idea of its long-term needs.

In the meantime, you can pick up Applied Optoelectronics shares at the low, low price of 7.8 times trailing earnings. That just might be too cheap to pass up, says fellow Fool Nicholas Rossolillo. He's not wrong.

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