Optical Communication Products (OCPI)
Number 2
lightreading.com
Over in aisle 2, in the optical bargain bin, we found Optical Communication Products Inc. (Nasdaq: OCPI - message board). It appears to be undervalued, when compared with its peers. Why? Maybe it’s the lineage: This optical components company is a spinoff of Japanese electronics giant Furukawa Electric Co. Ltd., and, at the moment, Wall Street isn’t fond of things Japanese. Another reason why the shares are trading in the low teens may be that the company’s recent IPO, launched this fall, came as the financial markets were starting to melt down. The company never got the early pop that most optical IPOs enjoyed earlier in the year.
Regardless, OCPI — based in Chatsworth, Calif. — is a high-growth optical components company. It trades at a discount, compared to many of the valuations commonly seen in the optical components sector. Recently trading at $10 per share, the company had a market capitalization of roughly $1 billion — relatively cheap, considering its annual revenue growth rate is in excess of 100 percent. At $10, the stock was trading at less than six times projected sales for the next four quarters, significantly lower than most of the fast-growing optical components plays. According to Morgan Stanley Dean Witter, the average valuation multiple on optical components companies is 10 times forward 12-month revenue estimates. Case in point: JDS Uniphase Inc. (Nasdaq: JDSU - message board; Toronto: JDU), a much larger company with a slower growth rate, was trading at ten times forward sales. And OCPI isn’t as risky as some ventures: This company was actually profitable before its IPO, earning $8.5 million in the third quarter of 2000.
OCPI markets an array of integrated optical components, including a range of transceivers and an OC48 (2.5 Gbit/s) transponder targeted at the red-hot next-generation Sonet market. The company’s largest customer is Cisco Systems Inc. (Nasdaq: CSCO - message board). OCPI stands to directly benefit from Cisco’s booming business in the ONS 15454 box, the next-generation Sonet product that came with the Cerent acquisition. OCPI is a major supplier for this product, which is driving the bulk of Cisco’s optical sales.
Recent data indicates the company’s growth rate is sustainable and tracking well. Revenue for the fourth quarter of fiscal 2000 increased 158 percent to $32.8 million, compared with $12.7 million for the same period in fiscal 1999. Net income for the fourth quarter of 2000 increased 194 percent to $8.5 million, compared with $2.9 million for the same period in 1999. |
