Why Shares of Acacia Communications Dropped Today

Image source: Acacia Communications.

What happened

Shares of Acacia Communications (NASDAQ: ACIA), a provider of coherent optical interconnect products, slumped on Tuesday following the company's presentation at the Needham & Company Growth Conference. Acacia sounded a confident tone during the presentation, but investors are no doubt concerned about the company's growth story. At 3:15 p.m. EST, the stock was down about 11%.

So what

According to Needham analyst Alex Henderson, Acacia's presentation was largely upbeat. The company stated that it expects continued share gains and growth, with strong demand in China being a major driver. The first quarter may be hit by seasonality in China, Acacia noted, but the company expects business to pick up during the following quarters.

Needham continues to have a buy rating and a $125 price target on the stock following the presentation, but investors aren't as confident. With Tuesday's slump, shares of Acacia are now trading around $57 per share, less than half of Needham's target. The stock has been in decline since October, losing more than half its value in just a few short months.

ACIA data by YCharts.

Now what

Acacia stock trades for around five times trailing-12-month sales at the moment, which prices in quite a bit of growth going forward. Needham's price target prices in even more growth, and it's clear that investors aren't buying it.

Acacia is expected to report its fourth-quarter results in early February. With the company sounding confident, investors will be looking for solid results and optimistic guidance for 2017.

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