APPLIED OPTOELECTRONICS INC (NASDAQ:AAOI) Shows Strong Growth Momentum with Minervini's SEPA System

Investors looking to find stocks with strong growth potential frequently use methods that combine strict technical and fundamental study. One well-known technique is the system used by Mark Minervini, a two-time U.S. Investing Champion. His system, called Specific Entry Point Analysis (SEPA), methodically sorts for stocks showing solid upward trends, better comparative performance, and increasing fundamental growth. This two-part method tries to identify market leaders early in their large price gains by checking they are technically healthy and fundamentally getting better. A recent filter joining Minervini's Trend Template with a High Growth Momentum (HGM) filter has highlighted APPLIED OPTOELECTRONICS INC (NASDAQ:AAOI) as a stock that deserves more study.

Technical Fit with the Minervini Trend Template

The central part of Minervini's first filtering process is his Trend Template, a group of fixed technical rules made to verify a stock is in a solid, confirmed uptrend. AAOI seems to satisfy these strict requirements, which is important for the system as it directs money to stocks where the trend is favorable, not on those attempting to recover from lows.

• Price Above Key Moving Averages: The stock's present price trades significantly above its rising 50-day ($29.76), 150-day ($26.64), and 200-day ($23.83) simple moving averages. This position shows continued buying interest across short, medium, and long-term periods.
• Moving Average Order: The 50-day moving average is positioned above both the 150-day and 200-day averages, and the 150-day is above the 200-day. This "stacked" order is a standard sign of a solid stage 2 uptrend, indicating gaining speed.
• Nearness to Highs: A main Minervini rule is to concentrate on strength, not low price. AAOI's price is about 308% above its 52-week low of $9.71 and within 6% of its 52-week high of $41.96. This shows the stock is behaving like a market leader, not an underperformer.
• Better Comparative Performance: With a ChartMill Relative Strength (CRS) score of 86.95, AAOI is doing better than almost 87% of the market. Minervini notes that the largest winners usually have high comparative strength scores, often above 80, indicating institutional buying and leadership.

Fundamental Driver for High Growth Momentum

While the Trend Template checks a stock is technically prepared, Minervini's SEPA system requires a fundamental reason, usually fast growth in sales and profits. The High Growth Momentum (HGM) rating is made to find this element, and AAOI's basic numbers show a company in a major growth period.

• Fast Sales Speed Increase: The most striking numbers are in sales growth. Year-over-year sales growth for the last reported quarter jumped by 82.1%, after even higher growth rates of 137.9% and 145.5% in the two previous quarters. This sequence of sharp increase is precisely what growth investors and the Minervini system look for, as "big earnings [and sales] attract big attention" from institutional investors.
• Earnings Path: The earnings situation shows a clear recovery. Although the company reported a loss over the past twelve months, the EPS growth rate on a trailing twelve-month basis is positive at 61.8%. More significantly, recent quarterly EPS growth has been firmly positive, including a 57.1% rise in the last quarter. This implies operational gains are starting to reach the net profit.
• A Point on Estimates and Margins: It is necessary to recognize points for care. Analyst estimates for future earnings have been adjusted lower lately, and profit margin information for recent quarters is not present in the given numbers. A complete fundamental check would need a more detailed look into the company's margins, financial position, and the causes of the sales jump to judge how long it can last.

ChartMill Technical Condition Summary

A look at the detailed technical report for AAOI gives the stock a high technical rating of 9 out of 10. The report confirms both the long-term and short-term trends are good, and the stock is trading in the higher part of its 52-week range. The summary states very good technical condition but also mentions that the recent price action has been unstable, leading to a lower setup quality score. This means that while the trend is solid, the stock may not be in a current, lower-risk consolidation shape perfect for a new purchase. Investors using Minervini's ideas would probably add AAOI to a watchlist, looking for a volatility decrease pattern (like a VCP) to form before thinking about a precise entry.

Locating Comparable Prospects

The filter that found AAOI is built to methodically locate stocks that are both technically sound and fundamentally speeding up. For investors wanting to use this strict method to discover other possible stocks, the filtering rules can be found here: High Growth Momentum + Trend Template Screen.

Disclaimer: This article is for information and learning only. It is not a suggestion to buy, sell, or keep any security. The study is based on given data and a particular investment system. All investing includes risk, including the possible loss of the amount invested. You should do your own complete research and think about talking with a qualified financial advisor before making any investment choices.