The 13.12% jump of Alliance Fiber stock was among the biggest ones on the NASDAQ and the closing price at $1.80 for a share was the highest over the past 52 weeks. Although not officially filed yet, the second quarter results of the company, being phenomenal as published in the press release on Thursday last week, seem to be still feeding investor optimism. The trading volume is growing, but the market consolidation might happen after the official SEC filing is done.
And there appears to be not only upside, but also some downside potential as well, as the stock is currently too optimistically priced according the company’s fundamentals. Though, Alliance Fiber Optics’ management is not that opinion and prefers pointing out the upside potential.
At the end of June the company appointed a special meeting of its stockholders, to be held on August, 20 and the issue to be voted is a reverse split of the outstanding common stock. The exact ratio appears to be undetermined yet, but it will be between 1-for-5 and 1-for-10. Although not suggesting any fundamental improvements for the underlying business, that action did not harm the stock, as it continued surging and climbing up the 52-week peak.
There seem to be improvements anyway, although the business is still unable to produce positive cash flows from operations. Revenues were mostly increasing over the previous four quarters and as the company managed to keep the costs down, the income from operations increased more than four times during the first three months of the year as compared to the same period last year.
As the stock price grows however, some dilution risks are also approaching and may become reality soon. There were 4.58 million stock options outstanding at the end of March under the company’s incentive plan with an average exercise price of $1.40, which could reduce the effect of the planned reverse stock split.
