Fabrinet Appreciates 74% YTD: Should You Buy, Sell, or Hold the Stock?

Core Insights - Fabrinet (FN) shares have appreciated 74.3% year to date (YTD), outperforming the Zacks Electronics – Miscellaneous Components industry's advance of 38.9% and the Zacks Computer and Technology sector's return of 19.8% [1] - The surge in share price is supported by strong momentum in telecom and Data Center Interconnect (DCI) products, alongside the ramp of 1.6-terabit transceivers [1] - Fabrinet's shares have outperformed peers like Jabil (JBL) and Coherent (COHR), which are up 55.9% and 15.2% YTD, respectively, but lag behind Celestica (CLS), which has surged 174% [1] Financial Performance - Fabrinet anticipates Q1 fiscal 2026 revenues of $910 million to $950 million, reflecting a 24% increase year over year [9] - The fourth-quarter fiscal 2025 performance shows optical communications revenue increased 15% year over year to $689.92 million, with balanced growth between telecom operations ($436.80 million) and datacom operations ($253.12 million) [10] - Non-optical communications contributed $231 million, representing 41% year-over-year growth through automotive and industrial laser applications [10] Product and Market Strategy - The product portfolio's evolution towards next-generation technologies underpins growth acceleration, with DCI products generating $107 million quarterly and achieving 45% year-over-year growth [11] - The transition to higher-speed optical products, particularly 800-gigabit and faster products, achieved $313 million in revenues, up 32% sequentially [11] - Strategic portfolio expansion through the Amazon Web Services partnership for high-performance computing applications indicates deliberate market diversification [12] Guidance and Constraints - For Q1 fiscal 2026, Fabrinet expects revenues to increase 24% year over year but only 2% sequentially from the June quarter's $910 million, reflecting near-term supply constraints [13] - Non-GAAP earnings are projected at $2.75-$2.90 per share, factoring in margin headwinds of 10-20 basis points from annual compensation resets and inefficiencies tied to new program ramps [14] - Performance is expected to be constrained by shortages of 200-gigabit per lane externally modulated lasers, critical for both 800G and 1.6T transceiver production [15] Valuation - Fabrinet shares are considered overvalued with a Value Score of D, trading at 31.74X forward 12-month earnings, above the industry average of 22.74X and the sector average of 29.52X [16] - Compared to peers, Jabil trades at 21.43X and Coherent at 26.61X, both at meaningful discounts to Fabrinet [17] - The stock's valuation reflects strong demand trends in optical communications and data center interconnect, but much of the upside appears captured after a 74% YTD rally [20]