INFN Analysis – Infinera Corp 1Q13

INFN Analysis – Trading Infinera Corp Stock 1Q13

Watch this free INFN Analysis video below to see how I’m trading Infinera Corp (NASDAQ:NYSE).

INFN Analysis: Fundamental Case for INFN

By my analysis, INFN is very well positioned. Folk wisdom says they’ll beat down your door for a better mousetrap. Lucky for us, INFN has a better digital optical networking model. On the other hand…

(And as I mentioned in the video analysis above), INFN is the only stock I own that I would classify as a growth stock. Sure, my other stocks are growing. But the purchases are based on discounted valuations reflected in the common stock that give me a margin of safety.

Whereas…

My purchase of Infinera stock (and call options, here and there) are my most speculative investments by far. As you saw in the video INFN analysis above, the stock is trading at over twice book value per share, and it’s not even making money!

Benjamin Graham Would Not Approve This INFN Analysis

But based on the superior PIC based product, an increasing need for networking equipment and an impending infrastructure upgrade cycle, INFN continues to gain market share with the DTN-X platform. It may be a bumpy road (more on why that is in the technical analysis below)… but INFN should be able to weather the storm with its stack of cash and lack of debt.

April 16 Update: INFN announces another DTN-X win with Interoute – Europe’s largest owner/operator of cloud services. If you’ve read the well-regarded book, “Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers,” you know that as more customers deploy the highly advanced DTN-X platform, the number of potential reference customers grows, and DTN-X becomes more likely to be adopted by more conservative players. Fingers crossed the INFN snowball keeps rolling.

Thus…

I believe INFN will continue to grow enough to justify buying the stock around $6. Without more Tier 1 DTN-X adoptions, I see $9.50 as a fundamentally justifiable intermediate term sell targets… $7.50 and $8 are closer near term sell targets — (I like to trade parts of my investments, especially if they are becoming over priced).

Speaking of INFN price action…

INFN Analysis – Technical Analysis of Infinera Corp

As you read above, INFN may have a tough time getting higher today. It’s been trading in a channel the last two months and looks to be heading back to the bottom. Why the volality? It may be because as a small cap tech stock with limited volume and news, it is subject to technical manipulations lower. Big players can sell 100 share blocks all day long to drive the price down so they can gobble up the shares of weak hands at lower prices.

Speaking of which…

Non-believers in INFN may also be quick to sell out, for bonds and consumer staples when European debt headlines start popping up, or when the broader market indices pull back a few percent. It’s not exactly an overly safe investment.

From a technical analysis perspective, I would be reassured if INFN could hold the 200 day moving average and then consolidate further before moving steadily higher back up up to $7.50. The daily INFN chart doesn’t look stretched, but I wouldn’t be surprised if it needed more time before heading up.

So some of these price dynamics explain the rapid decline in Infinera stock price, shown in the INFN analysis in the video above. It certainly wasn’t a news story (unless some insiders know something?)

Anyway, while I am interested in buying the stock as it heads towards $6, I would wait for some stabilization before really diving in here (especially since it closed at the low of the day).

What’s your INFN analysis?

Update:
April 24, 2013 – Infinera announced earnings today and beat analyst expectations. The stock is up over 10% after hours. So here is an updated analysis for you…

I have never heard Infinera management this confident before. Over the last few quarters the CEO was much more cautious, compared to his opening statements this afternoon. There were also way more questions than the last couple calls. So I guess people are getting interested. Now I know these things are hard to quantify, but they’re always worth consideration. So…

Here are a couple other things that stood out to me:

INFN Management seems to believe that 100G is very rapidly becoming the industry minimum, globally. They’re also clear the DTN-X is the best solution for this caliber of long haul requirement. And they probably should be, since they are gobbling up market share with a record number of shipments this quarter. Accordingly…

They’re “very comfortable with the high end of their guidance.” Cool.

The rate of decrease in price is starting to slow as this disruptive new technology advances along the cost curve. This hasn’t impacted margins yet, and management still believes cost cutting will drive any margin improvements this year, and next year the sales on existing networks will start to improve margins too.

There has been a lot of growth out of Western and Eastern Europe. The RFP pipeline is strong here as well as in Asia, where demand seems to be a bit higher than expected. Opportunity appears ripe in the second half of 2013.

A word of caution: In the past few quarters, INFN has sold off after earnings. It will be interested to see if it ramps higher and follows through at the close tomorrow. My fingers are crossed, but I’ve been to this rodeo before. And given management’s tone, this time might be different.

What did you think this of the INFN earnings?

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