Lumentum stock jumped by over 13% in the premarket session after a highly bullish statement from Mizuho. LITE soared to $881, continuing a recovery that started on July 29 when it bottomed at $594. So, will this rally continue amid the rising valuation concerns?
Lumentum stock jumps after crucial upgrade
LITE stock has done well this year, helped by the ongoing artificial intelligence boom and the $2 billion investment from Nvidia. It has jumped by over 150% this year and 600% in the last 12 months.
The company’s optical and photonic products are used widely in the data center industry, which is seeing strong demand this year. For one, the top hyperscalers plan to spend over $750 billion in capital expenditure this year, a figure that may continue in the foreseeable future.
Lumentum counts some of the biggest companies as clients. This includes companies like Apple, Microsoft, Amazon, Alphabet, and Cisco.
Analysts are taking note, with most of them having a bullish outlook. In the latest note, a Mizuho analyst reiterated the bullish outlook for the company with a $1000 target. The analyst noted that the company will continue doing well, noting that its top suppliers like AXTI and Landmark continued to publish strong earnings and guidance.
Other top companies have boosted their outlooks for the company. Citigroup reiterated a buy rating, while Northland Securities hiked the target from $1,000 to $1,200. Another bullish outlook came from Citic Securities, which hiked the target from $620 to $1,186.
READ MORE: Why analysts are backing optical networking stocks like Lumentum now
Lumentum growth is continuing
LITE stock is doing well because of the ongoing Lumentum earnings growth. Its recent earnings showed that its cloud and AI business pushed its revenue up by over 90% in the third quarter to $808 million.
Components revenue jumped by 77%, while Systems soared by 24%. Most notably, its gross and net profit margins continued growing as it boosted its prices.
Most notably, the company’s balance sheet has continued improving. Its cash and short-term investments soared to $3.17 billion from $1.15 billion in the second quarter. This increase was partly because of its revenue growth and Nvidia’s investment.
Analysts now believe that the company has more room to grow. Yahoo Finance data shows that analysts expect the upcoming results to show that its revenue jumped by 105% to $987 million. For the year, revenue is expected to jump by 81% to $3 billion, followed by $5.6 billion next year. Lumentum’s earnings-per-share is expected to jump from $2.06 last year to $8.23.
These numbers explain why the company’s valuation has jumped. It has a forward price-to-earnings ratio of 94.80, much higher than the technology sector median of 23. This figure is much higher than the five-year average of 36. As such, these numbers mean that the company will need to publish stronger results to justify the valuation.
Lumentum stock technical analysis
LITE stock chart | Source: TradingView
The daily chart shows that the LITE stock has been in a downward trend, forming a descending channel. This channel was part of the bullish flag pattern, a common continuation sign in technical analysis.
The stock has remained above the 200-day Exponential Moving Average (EMA). Also, the Stochastic Oscillator has continued rising. Therefore, it will likely continue rising as bulls target the key resistance level of $1,086, the highest point this year.
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