What's the Risk of AAOI?
$Applied Optoelectronics(AAOI)$ risk to reward makes complete sense.
Here's why:
BULL CASE:
The bull case is a situation where management forecasts happen.
I.e. $471M/month in revenue by mid 2027 / $5.6B (likely more) in revenue by FY28.
$Lumentum(LITE)$ has a current sales multiple of 13x.
20% of $Applied Optoelectronics(AAOI)$ revenue is attributed to this segment so 20% * 13x = 2.6x sales.
Innolight and Eoptolink trade ~9x sales and this is where 80% of $Applied Optoelectronics(AAOI)$ revenue is likely to come from.
80% * 9x = 7.2x
Blended multiple = 9.8x sales
9.8x * $5.6B = $55B EV (5.5x from today).
And this excludes ELSFP potential revenue of $200M/month in FY28 onwards.
BEAR CASE:
Say management forecasts are way off. The projected ramp up is delayed and/or units per month is off by 50%.
Note 50% is a huge risking factor.
Let's take 50% of the potential $5.6B transceiver revenue meaning we have $2.8B in revenue (still 83% CAGR from FY25).
Let's also compress the 9.8x sales multiple I showed above by 50% to 4.9x (4.9x sales on 83% CAGR).
We then have an EV that will come out ~$13.7B.
That likely loses out to the market over the next 2-3 years but imo that seems like ab absolute base case and it's still higher than the EV today.
Fair?
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