FN Stock Surges 18% With A 5-day Winning Spree On Record Earnings

Fabrinet (FN) – a provider of optical packaging and precision electro-mechanical manufacturing services – hit a 5-day winning streak, with cumulative gains over this period amounting to 18%. The company’s market cap has surged by about $3.0 Bil over the last 5 days and currently stands at $20 Bil.

The stock has YTD (year-to-date) return of 20.0% compared to 0.9% for S&P 500. This calls for a re-evaluation of the stock’s valuation to find out whether this is an opportunity or a trap.

What Triggered The Rally?

[1] Q2 Earnings Beat and Strong Q3 Guidance

• Record revenue of $1.13 billion and non-GAAP EPS of $3.36
• Q3 revenue guidance of $1.15 billion to $1.20 billion
• Impact: Stock gapped up following the announcement, Increased investor confidence

[2] Multiple Analyst Upgrades and Price Target Hikes

• Needham and Rosenblatt reiterated “Buy” ratings with price targets of $540 and $550 respectively
• Wolfe Research upgraded to “Outperform” with a $540 price target
• Impact: Reinforced bullish sentiment, Attracted new institutional buyers

[3] Technical Breakout Above Key Resistance

• Broke through resistance in the low-$530s
• Price action signaling a clear breakout
• Impact: Triggered momentum-based buying, Shares reached new 52-week highs

Opportunity or Trap?

Below is our take on valuation.

There is not much to fear in FN stock given its overall Strong operating performance and financial condition. But given its Very High valuation, the stock appears Relatively Expensive (For details, see Buy or Sell FN).

But here is the real interesting point.

You are reading about this 18% move after it happened. The market has already priced in the news. To catch the next winner before the headlines, you need predictive signals, not notifications. Our High Quality Portfolio has flagged 5 new opportunities that have not surged yet.

Returns vs S&P 500

The following table summarizes the return for FN stock vs. the S&P 500 index over different periods, including the current streak:

However, big gains can follow sharp reversals – but how has FN behaved after prior drops? See FN Dip Buyer Analysis to learn more.

Gains and Losses Streaks: S&P 500 Constituents

There are currently 64 S&P constituents with 3 days or more of consecutive gains and 32 constituents with 3 days or more of consecutive losses.
 

 
 
Key Financials for Fabrinet (FN)

Last 2 Fiscal Years:

Last 2 Fiscal Quarters:

While FN stock looks attractive given its winning streak, investing in a single stock without detailed, thorough analysis can be risky. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 — the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.