Serenity said on August 24 that it remains bullish on Applied Optoelectronics (AAOI), even as it criticized the company’s latest ATM, or at-the-market, equity offering.
The firm said it does not like AAOI’s heavy reliance on ATM financing. It said the same principle had already applied to IREN and POET, and AAOI should not be treated differently.
The sharpest criticism was aimed at timing. Serenity said the roughly $600 million ATM should have been launched after 1.6T optical module qualification was completed, a milestone expected in the next few weeks. It also said AAOI could have used a structure such as convertible debt priced above market.
Instead, the company launched the ATM after its share price fell from $220 to $130. Serenity said that choice would create short-term structural selling pressure and a persistent drag each time the ATM is used.
Even so, Serenity said it remains heavily positioned in AAOI. Its core view is that the company is capacity constrained while demand visibility is very high, which makes AAOI more attractive than POET. Investors, it said, do not need to support every management decision in order to stay long the stock.
“You can criticize management’s financing pace and still hold the stock based on the supply-demand setup,” Serenity said.
AAOI reported second-quarter revenue up 86% year over year and above expectations, but third-quarter guidance was weak. Serenity said the ATM has added to concerns about AAOI’s near-term valuation and liquidity.