There's a new name in double-net land (stocks trading at between 1 and 2 times net current asset value or NCAV), technology name Finisar (FNSR) . Stocks that land here and trade at such a relatively low multiple of net current assets don't usually do so because of an improving balance sheet, but rather due to a steep price decline.
That's is exactly what happened in FNSR's case, as shares have fallen 26% over the past two weeks on a an earnings miss, disappointing guidance, and concern about the optical components sector. While the company's third quarter revenue was all but in-line with the consensus, earnings of 20 cents per share missed the 23 cent consensus estimate. What's more, company guidance for the fourth quarter also startled investors, with the company expecting revenue to be in the $300-$320million range (below the $333 million consensus) and earnings per share in the 9 to 15 cent range (versus 21 cent consensus). The combination of a below expectations quarter, and reduced guidance has investors fleeing.
When everyone else is selling, stocks will often end up on my radar, and that is the case here. Finisar is a new name to me, and in such cases, I do proceed with caution, and won't make a quick move. While the market does sometimes overreact to negative news, it does also gets some situations right. Deep-value investors need to determine which is the case in a given situation -- has the market overreacted or not -- and if you decide the former is correct, take a position, and are wrong, the results can be disastrous.
FNSR currently trades at 1.93 X NCAV, and the balance sheet, at the very least is interesting. The company ended the latest quarter with more than $1.2 billion or $10.56 per share in cash and short-term investments; however the company does have $732 million in convertible debt. It also trades fairly close to tangible book value per share (1.13 X).
With a reduction in company guidance, and corresponding reduction in consensus estimates, FNSR's forward price earnings ratio for 2019 is just under 16. That includes a sharp reduction in earnings estimates; just two months ago the consensus was calling for full-year 2019 earnings of $1.39, and has reduced that to 95 cents. You can't disappoint investors, or their expectations without severe repercussions.
One year ago, FNSR was trading at $28, today it's at $15. What it's really worth remains to be seen. But at this point, one thing is certain; there's a new name in double-net land.