Investors ignore increasing losses at Applied Optoelectronics (NASDAQ:AAOI) as stock jumps 25% this past week

While Applied Optoelectronics, Inc. (NASDAQ:AAOI) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 22% in the last quarter. But that doesn't change the fact that the returns over the last year have been very strong. During that period, the share price soared a full 253%. So it is important to view the recent reduction in price through that lense. The real question is whether the business is trending in the right direction.

The past week has proven to be lucrative for Applied Optoelectronics investors, so let's see if fundamentals drove the company's one-year performance.

Check out our latest analysis for Applied Optoelectronics

Because Applied Optoelectronics made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.

In the last year Applied Optoelectronics saw its revenue grow by 0.3%. That's not great considering the company is losing money. So we wouldn't have expected the share price to rise by 253%. The business will need a lot more growth to justify that increase. It's quite likely that the market is considering other factors, not just revenue growth.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for Applied Optoelectronics in this interactive graph of future profit estimates.

A Different Perspective

It's nice to see that Applied Optoelectronics shareholders have received a total shareholder return of 253% over the last year. Notably the five-year annualised TSR loss of 10% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should learn about the 4 warning signs we've spotted with Applied Optoelectronics (including 1 which is a bit concerning) .

Applied Optoelectronics is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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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.