Applied Optoelectronics (AAOI): Assessing Valuation After a Sharp Multi‑Year Rebound and Recent Share Price Pullback

Applied Optoelectronics (AAOI) has been quietly resetting expectations this year, with the stock slipping about 22% year to date even as annual revenue and net income have grown sharply off a low base.

See our latest analysis for Applied Optoelectronics.

Despite that weak year to date share price return, the stock has quietly rebuilt some momentum, with a 90 day share price return of 17.37% and a striking three year total shareholder return above 1,100% hinting that investors still see meaningful long term optionality.

If AAOI’s rebound has your attention, it could be a good moment to explore other high growth tech and AI names using high growth tech and AI stocks as a starting list of ideas.

With rapid top line growth, a still loss making bottom line, and shares sitting just below analyst targets, investors face a key question: is AAOI undervalued today, or is the market already pricing in the next leg of growth?

Most Popular Narrative: 9% Undervalued

With Applied Optoelectronics last closing at $27.84 versus a narrative fair value of $30.60, the story hinges on aggressive growth and margin upgrades.

Analysts expect earnings to reach $111.0 million (and earnings per share of $1.5) by about September 2028, up from $-155.7 million today. The analysts are largely in agreement about this estimate.

Read the complete narrative.

Want to see how a deeply loss making business could flip to healthy profits in just a few years? The narrative leans on rapid revenue compounding and a profit margin reset, then applies a future earnings multiple more often reserved for established communications leaders. Curious which assumptions have to land almost perfectly for that valuation to hold up? Read on to unpack the full playbook behind this fair value.

Result: Fair Value of $30.6 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, this depends on disciplined execution. Heavy capex needs and extreme customer concentration both have the potential to derail those optimistic growth and margin targets.

Find out about the key risks to this Applied Optoelectronics narrative.

Another View: Market Pricing Looks Full

While the narrative fair value suggests upside, the market’s own yardstick tells a tighter story. AAOI trades on a price to sales ratio of about 4.5x, richer than both peers at 2.5x and the wider US Communications group at 2x, and even above its 4.4x fair ratio estimate.

That premium means investors are already paying up for flawless execution and high growth, leaving less room for disappointment if margins or demand slip. Is AAOI a misunderstood leader in the making, or is the market already looking one step too far ahead?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Applied Optoelectronics Narrative

If you would rather interrogate the numbers yourself and challenge these assumptions, you can spin up a custom narrative in minutes, Do it your way.

A great starting point for your Applied Optoelectronics research is our analysis highlighting 1 key reward and 2 important warning signs that could impact your investment decision.

Ready for more high conviction ideas?

Before you move on, consider your next watchlist candidates with a quick screen through fresh opportunities you might regret missing later.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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