Applied Optoelectronics Rises Despite Citron Short Call

Citron Research Announces Short Position

Applied Optoelectronics, ticker AAOI, shares increased by 2% on Friday despite a public announcement from Citron Research revealing a new short position against the company. The short-seller's report drew sharp contrasts between AAOI and its competitor, Lumentum.

Analysis of Valuation and Customer Base

Citron's thesis centers on what it calls an extreme valuation, with AAOI trading at 112 times forward earnings, a multiple nearly three times higher than Nvidia's peak. The firm also highlighted AAOI's 31% gross margins. A key point of concern is AAOI's reliance on its anchor customer, Oracle, which Citron noted has substantial debt and negative free cash flow. This is compared to Lumentum, whose main customer, Nvidia, has invested directly in the company.

Market Reaction and Price Target

The research firm characterized AAOI as 'delusional,' citing its commodity hardware margins and heavy capital expenditures. Citron stated that the stock should trade back to $85, a target that would still be above the consensus estimate. In its report, Citron also disclosed a long position in Corning, describing it as the fiber backbone for hyperscalers.

Summary

Despite the critical analysis from a well-known short-seller, the initial market reaction was positive. Investors will now monitor whether AAOI's stock performance can be sustained against the fundamental concerns raised by Citron Research regarding its valuation and customer dependency.

FAQ

Q: Why did Citron Research short Applied Optoelectronics?
A: Citron cited an extremely high valuation at 112x forward earnings, low gross margins, and heavy reliance on a single major customer, Oracle.

Q: How did AAOI stock react to the news?
A: AAOI shares rose by 2% on the day the short position was announced.

Source: Investing.com