NeoPhotonics Corp (NYSE:NPTN) is a wonderful semiconductor and 5G stock that has been taking full advantage of the explosion in demand for increased bandwidth.
NeoPhotonics stock has been enjoying industry tailwinds, with strong demand for the company’s products being driven by the COVID-19-related growth in Internet traffic from people working remotely.
NPTN stock is up 49.0% year-over-year and 25.8% since the start of 2021.
Since the November election, NeoPhotonics stock has been on fire. On January 20, NPTN stock hit a new 52-week high of $12.93, which represents a 107% increase from November 3.
NeoPhotonics stock has since given up some well-deserved profit-taking and is trading near $11.22, with support at $11.15. Still, NPTN stock is up 80% since the November election.
The company’s near- and long-term outlooks remain solid. In addition to NeoPhotonics Corp’s strong third-quarter results, investors are intrigued by the idea of the company being a potential takeover target.
As you can see in the chart below, NeoPhotonics stock gained almost 10% on January 14 when Cisco Systems, Inc. (NASDAQ:CSCO) said it was buying Acacia Communications, Inc. (NASDAQ:ACIA) for $4.5 billion, or $115.00 per share. (Source: “Cisco and Acacia Communications Announce Amended Merger Agreement,” Cision PR Newswire, January 14, 2021.)
NPTN stock got another boost of almost 10% on January 19 after Lumentum Holdings Inc (NASDAQ:LITE) announced that it had agreed to acquire Coherent, Inc. (NASDAQ:COHR) for $5.7 billion in cash and stock. (Source: “Lumentum And Coherent to Combine, Uniting Global Industry Leaders to Accelerate the Future of Photonics,” Lumentum Holdings Inc, January 19, 2021.)
With Huawei Technologies Co., Ltd. shut out of the U.S. and certain other Western markets, NeoPhotonics Corp is one of the industry’s most attractive takeover targets. Wall Street has been saying that Lumentum and II-VI, Inc. (NASDAQ:IIVI) are the leading candidates to acquire NeoPhotonics.
While nothing is certain, analysts remain bullish on NeoPhotonics stock, with a high 12-month share-price forecast of $15.00 and five analysts providing a “Buy” rating. Three analysts have maintained a “Hold” rating.
Chart courtesy of StockCharts.com
NPTN Stock Overview
NeoPhotonics is a leading developer and manufacturer of ultra-pure light lasers and optoelectronic products that transmit, receive, and switch high-speed digital optical signals for communications networks. (Source: “Q3’20 Summary: January 2021,” NeoPhotonics Corp, last accessed February 4, 2021.)
The company’s technology allows it to “deliver the increased performance, reliability and power efficiency for products that address the highest speed over distance applications and at data rates including 200G, 400G, 600G and coming 800G per second rates on a single wavelength for Cloud, data center and telecom networks.” (Source: “NeoPhotonics Reports Third Quarter 2020 Financial Results,” NeoPhotonics Corp, November 2, 2020.)
NeoPhotonics Corp’s products are categorized into groups: High Speed Products and Networking Products. (Source: “Q3’20 Summary: January 2021,” NeoPhotonics Corp, op. cit.)
The company’s High Speed Products include transmitter and receiver products, as well as switching and other components for 100G optical transmission applications over distances of up to 2,000 km (about 1,243 miles).
Its Networking Products are sold for use in optical communications networks and other applications for use at data rates that are less than 100Gbps.
Strong Third-Quarter Results
Last November, NeoPhotonics announced that its third-quarter revenue increased 11% year-over-year to $102.4 million. (Source: NeoPhotonics Corp, November 2, 2020, op. cit.)
The company reported a third-quarter net loss of $4.9 million, or $0.10 per share. In the third quarter of 2019, NeoPhotonics reported third-quarter net income of $2.2 million, or $0.05 per share.
Its adjusted net income in the 2020 third quarter was $0.11 per diluted share, which was the same as in the 2019 third quarter. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $13.1 million, compared to $14.2 million in the same prior-year period.
NeoPhotonics’ cash generated from operations was $15.0 million, up from $9.6 million in the prior quarter and up from $9.0 million in the third quarter of 2019.
NeoPhotonics stock is an intriguing micro-cap 5G stock that should continue to experience solid growth due to the growing demand for high-speed bandwidth. I’m not the only one who thinks so: 85.5% of the company’s shares are held by 200 institutions.
And thanks to the recent rash of merger-and-acquisition activity, NeoPhotonics Corp could get snapped up as well.