Ciena: Rating Downgrade On Expensive Valuation
Summarize this article with:
Jay Capital1.42K FollowersFollow5ShareSavePlay(8min)CommentsSummaryCiena Corporation has validated its AI infrastructure thesis, with cloud revenue now 42% of total and robust hyperscaler adoption.CIEN's Q4 revenue grew ~20% y/y to $1.35B, with strong margin expansion and EPS beat, but gross margins are expected to stabilize around 43%.Rapid commercialization of Scale-Across and WaveLogic 6 platforms underpins growth, yet cloud-driven mix may compress margins and increase volatility.With CIEN now trading at ~41x forward PE, I downgrade to hold due to stretched valuation and heightened downside risk from any AI capex slowdown.Tim Robberts/DigitalVision via Getty Images Summary Following my coverage on Ciena Corporation (CIEN) in October '23, in which I recommended a buy rating given the solid fundamentals, execution of major projects, and an expanding TAM, this post is to provide an update onThis article was written byJay Capital1.42K FollowersFollowI take a fundamentals-based approach to value investing.I disagree with the common misconception held by many investors that low multiple stocks must be cheap. I look for companies that offer the best long-term durability at the most affordable prices. Consequently, I have a propensity to be drawn to companies with steady long-term growth, no cyclicality, and a robust balance sheet.Nevertheless, investing in successful company is risky because one may end up paying too much (this is where valuation matters). I firmly believe this, yet there are situations where the development runway is so vast that price matters much less in the immediate future.Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.