The global computer networking sector is generally on an upward trajectory. However, companies like Infinera Corp. (NASDAQ:INFN) are still recording losses. This could merely be as a result of investors undervaluing the stock or lack of confidence in growth prospects.
The computer networking industry is making great strides, especially in the US. Interestingly, the situation is the same in the global stage. Particularly, Infinera Corp. (NASDAQ: INFN) is substantially underperforming the market.
Infinera Corp. (NASDAQ:INFN) underperforming the market
In the last one year, Infinera’s average return to shareholders was -35%. This is against the US Communications industry’s 15.2% over the same period. Further, the US market returned -2.3% on average in that period. This is to say that the firm underperformed both the communications industry and the US market.
As such, the stock’s value is also underperforming. Particularly, there is a very little price activity for the stock, a signal that investors are selling.
To better grasp the status of the share price, we shall consider the Commodity channel index (CCI) for the stock. This will help to identify any cyclical trend, trend lines, and divergence if any.
Notably, the CCI reading for the stock is -76.33. Usually, such negative CCI readings indicate that the price is way below its average. This is to say that there is a minimal momentum for the share price. In other words, the stock is very weak at the moment.
Volatile but weak
Interestingly, the relative strength index (RSI) of the stock concurs with the CCI. In particular, the RSI now reads 38.69. Usually, values below 30 indicate critical weakness for the stock. As such, the stock is just a few units away from the crucial point of weakness.
However, the average true range (ATR) reveals an interesting fact about the Infinera stock. Particularly, the stock experienced substantial price movements in the last one month. As such, the price is highly volatile. This is to say that it could move in either direction suddenly. However, it is highly likely that the price will pick up some value.
Usually, the ATR smoothens the noise of the huge price shifts and indicates a highly likely direction for the stock. Based on the stock’s ATR, the activity is seemingly bottoming out at 0.285. This ATR value corresponds with the current share price of 4.23 for INFN. This is to say that investors should expect the price to pick up in the next few trading months.
Further, the stocks 50-day and 200-day moving averages indicate that there are resistances at certain points. Particularly, the MA (200) reading stands at 8.52 which is higher than the 5.22 for the MA (50). As per the 200-day moving average, the long-term prospects for the stock are positive.
Balance sheet in the red
Unfortunately, the results for Q3 2018 are not encouraging. In the third quarter, Infinera managed a GAAP net loss of $(32.6) million. This translates into $(0.21) per share. Notably, this is a poor performance if we consider the earnings for Q2 2018. However, this is a bit of an improvement from the same quarter last year.
Further, the non-GAAP loss was not as substantial. However, it was still higher than the non-GAAP loss for the second quarter of this year.
Besides, the GAAP gross margin for the firm was down to 35.0% compared to 40.5% of Q2 2018. The percentage is still smaller than that for Q3 2017 by 0.2%.
However, the operating margin is still in the red for all the quarters so far. The third quarter 2018 saw the operating margin increase to (12.6) % as opposed to (17.8)% in the third quarter of 2017.
Interestingly, the Q3 results were within the guidance shared during the second quarter. Since the guidance for Q4 is positive, it is likely that the firm’s stock price will improve.