Why NeoPhotonics Corp. Jumped 28% Monday

What: Shares of NeoPhotonics closed 28% higher on Monday. The stock posted a quick bounce back from the35% plunge seen on disappointing second-quarter results last Friday.

So what: Analyst firm Raymond James already liked NeoPhotonics just fine, keeping an "outperform" rating on the stock before Friday's roller-coaster plunge. Now, the firm calls NeoPhotonics a "strong buy" instead. I don't have access to the full research note, but would guess that valuation plays a large part in this upgrade.

Now what: NeoPhotonics offered weak sales guidance for the third quarter but held full-year targets steady. A couple of large orders from Chinese clients were reportedly pushed into the fourth quarter, explaining the need for lower short-term revenue goals. But the long-term story never changed.

You don't have to be a gambler to see that background story coupled with a 35% discount and call it an opportunity. And it's not like NeoPhotonics is standing alone here. Other fiber-optics vendors have reported similar market trends, and the whole trend matches up perfectly with macroeconomic news coming out of China. That massive economy is headed for rampant investments in wireless networks over the next few years, but there's no immediate rush to get that party started early.

So Raymond James simply took action on a temporary buy-in opportunity. In the process, the recommendation itself helped erase the discount. I think Schroedinger's cat would appreciate that paradox, but he's having a beer with Heisenberg and I'm afraid to ask. One of us might end up dead.

The article Why NeoPhotonics Corp. Jumped 28% Monday 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.

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