The technology sector is likely to face challenges in the near term as a result of macroeconomic issues such as trade tensions and a slowing global economy. Additionally, the communication and networking industry is facing challenges like consumer privacy, supply chain issues, IoT and AI integration, market dynamics, competition, and environmental impact.
So, I think it could be wise to wait for a better entry point in Casa Systems, Inc. (CASA) for reasons discussed throughout this article. However, Applied Optoelectronics, Inc. (AAOI) is best avoided considering its weak fundamentals.
We have seen an explosion in technology and connection over the last few decades. Our reliance on reliable networks and constant internet connection has become ingrained in our daily lives. As a result, network providers are under growing pressure to expand their infrastructure in order to satisfy the demands for next-generation networks.
This strain is caused by the growing number of internet-connected gadgets, such as smartphones, smart home devices, and wearable technologies. Also, the emergence of technologies such as artificial intelligence and virtual reality increases the demand for a strong network infrastructure to serve these advanced applications.
Additionally, global supply chain disruptions and trade tensions have exacerbated industry challenges, resulting in higher costs, delayed production, and market volatility due to hardware component availability and networking equipment availability.
Let’s delve deeper into the fundamentals of the featured stocks.
Stock to Hold:
Casa Systems, Inc. (CASA)
CASA is a communications technology company, provides solutions for next-generation physical, virtualized, and cloud native architectures for cable broadband, fixed-line broadband, and wireless networks in North America, Latin America, the Asia-Pacific, Europe, the Middle East, and Africa.
CASA’s trailing-12-month asset turnover ratio of 0.71x is 15% higher than the industry average of 0.62x. Its trailing-12-month EBITDA margin of negative 18.84% is compared with the industry average of 9.07%.
For the third quarter ended September 30, 2023 CASA’s revenues came in at $62.09 million, down 7.2% year-over-year. Its net loss and loss per share came in at $25.62 million and $0.26.
However, its total current liabilities came in at $114.43 million for the period that ended September 30, 2023, compared to $323.91 million for the period that ended December 31, 2022. Also, its total liabilities came in at $315.94 million, compared to $348.89 million for the same period.
Analysts expect CASA’s revenue to decrease 25% year-over-year to $215 million for the year ending December 2023. Its EPS is expected to decline 18.3% year-over-year to negative $0.84 for the same period. It failed to surpass EPS estimates in three of four trailing quarters. The stock has lost 81.3% over the past year to close the last trading session at $0.51.
CASA’s POWR Ratings reflect this uncertain outlook. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CASA also has a C grade for Value and Sentiment. It is ranked #13 out of 49 stocks in the Technology - Communication/Networking industry. Click here for the additional POWR Ratings for Growth, Stability, Momentum and Quality for CASA.
Stock to Sell:
Applied Optoelectronics, Inc. (AAOI)
AAOI designs, manufactures, and sells various fiber-optic networking products worldwide.
AAOI’s forward Price/Sales multiple of 2.34% is 11.6% higher than the industry average of 2.64.
AAOI’s trailing-12-month EBITDA margin of negative 15.62% is compared with the industry average of 9.07%. Its trailing-12-month EBIT margin of negative 25.22% is compared with the industry average of 4.69%
In the third quarter that ended September 30, 2023, AAOI’s operating loss came in at $6.69 million while its net loss and loss per share came in at $8.95 million and $0.27.
Its total current assets came in at $164.40 million for the period that ended September 30, 2023, compared to $183.16 million for the period that ended December 31, 2022. Also, its total liabilities came in at $373.79 million, compared to $408.26 million for the same period.
Street expects AAOI’s revenue to decline marginally year-over-year to $222.25 million for the year ending December 2023. It EPS is expected to come at negative $0.49 for the same period. Over past three months the stock has gained 12.6% to close the last trading session at $14.61.
AAOI’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of D, which equates to a Sell in our proprietary rating system.
It is ranked #40 in the same industry. It has an F grade for Stability and a D for Quality. To see additional AAOI’s ratings for Growth, Momentum, Sentiment and Value, click here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
CASA shares were trading at $0.56 per share on Wednesday morning, up $0.05 (+9.90%). Year-to-date, CASA has declined -79.49%, versus a 20.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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