High momentum, fast growth, hot sector? What’s not to like about Applied Optoelectronics (AAOI) (July 14, 2017)


Applied Optoelectronics ( NASDAQ:AAOI ). This has been a really, really strong stock. Amazing company where their earnings and growth are really solid. Their earnings per share, big turnaround over the last 6 months. They are projected to grow, I kid you not, 249 percent in 2017. The 2016 earnings were $1.39, they are projected to be 4.85 for 2017. So that is one of the reasons why the stock is moving up. The most important is, buyers are more aggressive than sellers.

Here is what we need to know here: Fifty-seven percent of the float is short. That is a massive number of shares that are short. And the float is not that much to begin with, 18.2 million. So we have got a small float, a lot of them are short, and the stock is breaking out to a new high. That is a recipe for a bunch of screaming bears. In fact we can call this (I just invented a new pattern), it is called the screaming bear pattern. Sideways consolidation, hope springs eternal with the shorts. And then now we are up at a new high and they are losing their shorts.

With Applied Optoelectronics ( NASDAQ:AAOI ), I think you have got to buy this stock. They report earnings on the third of next month, right? Well, they just pre-announced, that is why the stock is moving higher, they guided higher. So it looked like it is going to trend sideways for a while, well, maybe it is a new high. Then when we see what has happened in the last couple of days, this is institutional buying. And it is institutional buying at an all-time high. This is what we like to see. This is what you want to buy.

You buy some stock here. If it happens to pullback closer to the 50-day moving average you buy some more, and you do not sell the stock; not as long as we are seeing this. It was basically getting no play last year. And then suddenly, after this big earnings pop here, the volume started to kick off here. A very, very heavily traded stock relative to what it was a year ago, this signals institutional activity. That is why the stock is moving so much. Their earnings per share (EPS) rating is 99. They are in the top 1 percent of all publicly traded companies when it comes to their earnings quality. Massive growth rate, high earnings. Accumulation is massive. Short interest is high. Float is low. What else do you want?

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