Value
7.4/10data confidence 50%| Component | Sub-score |
|---|---|
| P/S | 4.5 |
| Fwd P/E | 8.7 |
| PEG | 10.0 |
- ▸Forward P/E: 12.9x
- ▸PEG: 0.02
- ▸Attractively valued
AAOI · Why this verdict
Why Applied Optoelectronics (AAOI) is rated SELL
Updated
Model-generated analysis — not investment advice. Not a registered investment advisor. Past performance does not guarantee future results. How we score · Editorial policy
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VerdictSELL
Overall score5.7/10
ConfidenceMEDIUM
MacroNEUTRAL
TrendMatrix Research · core thesis
Engine thesis — one sentence
Applied Optoelectronics is a hyper-growth optical components maker (86% YoY revenue growth) with a large analyst upside, but it burns cash, depends on a few customers and sits 70% off its high, making it speculative.
Falsifiable statement — pillar-level invalidators below. Engine-derived; not personalized advice.
Thesis pillars
| Pillar | Expectation | Trend |
|---|---|---|
Revenue is growing 86% YoY, making the company an industry growth leader, with a forward P/E of 15.0x and PEG of 0.02. Growth breakdown | Revenue growth should stay above 40% YoY over the next 12 months. | →Stable |
| CounterGrowth from a low base and driven by a few customers can reverse sharply if orders pause. | ||
Free cash flow is negative at -149% of revenue and the quality score of 2.5 is below the 4.0 floor, with ROE and operating margin components at 0.0. Quality breakdown | Free cash flow burn should narrow to better than -50% of revenue as scale builds. | →Stable |
| CounterHeavy capex during a capacity ramp can depress cash flow temporarily; the current ratio component of 9.3 shows liquidity is currently adequate. | ||
Digicomm accounts for 53.1% of revenue and the top ten customers account for 96.6%, so losing one customer would sharply hurt results. Bear case | The top customer share should fall below 45% as the customer base broadens. | ↓Deteriorating |
| CounterConcentrated hyperscale-style demand is what is driving the 86% growth, so concentration also reflects strong customer pull. | ||
Analyst target of $135.72 implies 96.6% upside from $69.05 against 15.0% downside, a reward-to-risk of 6.44, after a 70% drawdown from the 52-week high. Targets | Price should recover toward the analyst target if the earnings report in 4 days confirms the growth. | Tripped↑Improving |
| CounterLight analyst coverage dampens the signal, and momentum of 2.4 with RSI at 27 shows sellers still in control. | ||
Short interest is 20%, implied volatility is 152% and insiders sold $7,160,644 (0.122% of market cap), signalling elevated risk. Risk breakdown | Short interest should decline below 15% if the growth thesis proves out. | ↓Deteriorating |
| CounterHigh short interest can fuel a squeeze if earnings beat, and institutions are accumulating. | ||
Revenue is growing 86% YoY, making the company an industry growth leader, with a forward P/E of 15.0x and PEG of 0.02.
→StableGrowth breakdown
- Expectation
- Revenue growth should stay above 40% YoY over the next 12 months.
CounterGrowth from a low base and driven by a few customers can reverse sharply if orders pause.
Free cash flow is negative at -149% of revenue and the quality score of 2.5 is below the 4.0 floor, with ROE and operating margin components at 0.0.
→StableQuality breakdown
- Expectation
- Free cash flow burn should narrow to better than -50% of revenue as scale builds.
CounterHeavy capex during a capacity ramp can depress cash flow temporarily; the current ratio component of 9.3 shows liquidity is currently adequate.
Digicomm accounts for 53.1% of revenue and the top ten customers account for 96.6%, so losing one customer would sharply hurt results.
↓DeterioratingBear case
- Expectation
- The top customer share should fall below 45% as the customer base broadens.
CounterConcentrated hyperscale-style demand is what is driving the 86% growth, so concentration also reflects strong customer pull.
Analyst target of $135.72 implies 96.6% upside from $69.05 against 15.0% downside, a reward-to-risk of 6.44, after a 70% drawdown from the 52-week high.
Tripped↑ImprovingTargets
- Expectation
- Price should recover toward the analyst target if the earnings report in 4 days confirms the growth.
CounterLight analyst coverage dampens the signal, and momentum of 2.4 with RSI at 27 shows sellers still in control.
Short interest is 20%, implied volatility is 152% and insiders sold $7,160,644 (0.122% of market cap), signalling elevated risk.
↓DeterioratingRisk breakdown
- Expectation
- Short interest should decline below 15% if the growth thesis proves out.
CounterHigh short interest can fuel a squeeze if earnings beat, and institutions are accumulating.
Per-dimension breakdown
Quality
2.5/10data confidence 100%| Component | Sub-score |
|---|---|
| ROE | 0.0 |
| ROA | 0.0 |
| Gross margin | 1.8 |
| Op margin | 0.0 |
| Net margin | 0.0 |
| Current ratio | 9.3 |
| FCF quality | 0.0 |
| Moat | 5.8 |
| Piotroski F | 5.6 |
- ▸Cash-burning: FCF -149% of revenue
- ▸Quality concerns
Growth
10.0/10data confidence 33%| Component | Sub-score |
|---|---|
| Rev growth | 10.0 |
- ▸Strong growth: 86% YoY
Momentum
1.4/10data confidence 100%| Component | Sub-score |
|---|---|
| RSI | 3.0 |
| MACD | 0.0 |
| OBV | 1.0 |
| MA position | 2.2 |
| Volume | 0.6 |
- ▸Capitulation risk (RSI 30, below 200MA)
- ▸Volume distribution (falling OBV)
- ▸Below 200-MA but MA still rising (+7.5%/30d) — pullback in uptrend, not confirmed weakness
Sentiment
7.4/10data confidence 100%| Component | Sub-score |
|---|---|
| LLM sentiment | 6.1 |
| Analyst rating | 6.5 |
| Price target | 10.0 |
- ▸Light analyst coverage (5.0) — signal dampened
- ▸Analyst upside: 221%
Insider
5.5/10data confidence 100%| Component | Sub-score |
|---|---|
| materiality | 3.0 |
| insider conviction | 2.0 |
| holder change | 10.0 |
| notable moves | 7.0 |
- ▸Notable insider selling — $6,564,196 (0.130% of mkt cap)
- ▸Institutions accumulating
Peer rank
4.2/10data confidence 80%| Component | Sub-score |
|---|---|
| value rank | 1.7 |
| quality rank | 0.4 |
| growth rank | 9.1 |
- ▸Industry growth leader
Technical
6.7/10data confidence 100%| Component | Sub-score |
|---|---|
| bollinger | 9.9 |
| support resistance | 9.9 |
| 52w position | 0.0 |
| gap | 7.0 |
Risk (lower is worse)
3.6/10data confidence 100%| Component | Sub-score |
|---|---|
| short interest | 1.5 |
| days to cover | 9.3 |
| volatility | 0.0 |
| put call | 5.5 |
| implied vol | 0.0 |
| max pain risk | 3.0 |
| beta | 0.0 |
| debt equity | 9.3 |
- ▸High short interest justified: 20%
- ▸High IV: 198%
- ▸Above max pain $35
- ▸Concentration risks: 2 HIGH, 1 MED (10-K Item 1A — sized via position_sizing, validated via buy_confidence)
Catalyst
6.7/10data confidence 100%| Component | Sub-score |
|---|---|
| erm | 5.0 |
| earnings history | 5.6 |
| earnings timing | 5.0 |
| surprise avg | 10.0 |
| news activity | 8.0 |
- ▸Earnings today
How the verdict was assembled
Engine trigger
Quality below minimum threshold.
Engine technical detail
verdict_path:
L1:HARD_BLOCK:QUALITY_FLOORPassed (3)
- INSIDER:OK
- SEMI_CYCLE_PEAK:CLEAR
- MATERIALS_CYCLE_PEAK:CLEAR
Failed (3)
- MOMENTUM:1.4<4.5
- 8K_CRITICAL:4.01
- EARNINGS_PROXIMITY:0d<=7d
Warning (1)
- ASYMMETRY:UPSIDE_EXHAUSTED (upside=0.0%)
Reward-to-Risk
0.00
Upside
+136.1%
Downside
15.0%
Sizing output
AVOID
Setup— — No clear chart pattern; technical signals are mixed
EdgeNo clear edge — No clear edge identified
SuitabilitySpeculative — Drawdown -79% (>40% off 52w high)
Investment implication
The SELL_IF_HOLDING verdict reflects the MOMENTUM gate's 1.4<4.5 outcome against Growth at 10.0 and asymmetric R:R of 0.00.
The strongest dimensions are Growth at 10.0, Value at 7.4, and Sentiment at 7.4; the weakest are Momentum at 1.4, Quality at 2.5, and Risk (lower is worse) at 3.6. The V9 engine flagged 3 failed gates with 1 warning, producing an asymmetric reward-to-risk of 0.00 and an engine sizing output of AVOID.
What would invalidate the thesis
Falsifying conditions — when triggered, the corresponding pillar's thesis is invalidated.
- P1Hypergrowth Revenue Leader
Trip ifRevenue growth falls below 25% YoY.
- P2Cash Burning Weak Quality
Trip ifFree cash flow stays below -100% of revenue for 2 consecutive quarters.
- P3Extreme Customer Concentration
Trip ifTop customer share exceeds 60% of revenue from current 53.1%.
- P4Large Analyst Upside Deep DrawdownTripped
Trip ifPrice falls below the $64.22 stop level, more than 7% below current $69.05.
- P5Heavy Short Interest And Insider Selling
Trip ifShort interest rises above 30% from current 20%.