Fabrinet is the IBD Stock of the Day as shares of the contract manufacturer hover near the most recent buy point.
The company provides the manufacturing muscle that enables telecom, health care, auto and other product categories. Its main expertise is optical communications, a method of sending data over long distances with high-speed light pulses. That type of business tends to have higher margins.
Fabrinet — which has factories in Thailand, China, New Jersey, Israel and Santa Clara, Calif. — owns about 50% of the outsourced optical communications manufacturing market, CEO Seamus Grady said at an investor conference last month. The other 50% is split among several other companies.
Grady said Fabrinet differentiates itself with low operating costs and, unlike some rivals, doesn't make any of its own products.
"We are a pure play contract manufacturer and we plan to stay that way," he said, according to a transcript provided by FactSet. "We're a service company. We provide a manufacturing service."
Stock Of The Day's Growth
Fabrinet is not exactly a hot-growth company, with a three-year EPS growth rate of 19% and a three-year sales growth rate of 13%. Yet, the stock has 92 EPS Rating and its 97 Composite Rating is second best in the contract manufacturing industry group.
For the fiscal year that just ended in June, analysts' consensus earnings estimate is $9.37 a share, an increase of 16%. For the fiscal fourth quarter, analysts expect EPS of $2.43, up 10% year over year. Fiscal-year sales are seen rising 18% to $3.392 billion, according to FactSet. Analysts expect fiscal Q4 sales to climb 17% to $883 million.
Analysts are almost evenly split on buy or hold recommendations, with an average target price of 274.75. The stock trades today around 285.
Last week, Northland raised its price target to 375 from 350 on the and kept an outperform rating, while Rosenblatt raised the price target to 290 from 250 and kept a buy rating. Both firms cited positive comments regarding Ciena, a key customer.
The Rosenblatt analyst also said contract wins from Amazon.com should be catalysts in fiscal 2026, according to TheFly.com. Stock of the Day Fabrinet is unique in its ability to consistently grow 15% to 20% organically, which is three times the growth rate of its end markets and competitors, the analyst added.
Fabrinet Near Buy Point
On June 25, Fabrinet stock broke out above a 281.79 buy point from a 21-week cup base. Shares climbed as much as 6.5% from the June 25 breakout but have fallen back to the buy point. Investors also could use the June 26 high of 300.29 as a high-handle entry. The relative strength line is near highs, which is positive for the stock.
The stock had more than doubled from a breakout to new highs in August 2023, forming several bases along the way. A base from late August 2024 to January of this year was a late-stage pattern that (unsurprisingly) failed. The latest base undercut the failed pattern, meaning the base count reset to an amenable first-stage base.
Fabrinet stock has a 21-day average true range (ATR) of 3.73%. The average true range is a metric available on IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks with a high ATR tend to make large price moves that can trigger sell rules. Stocks with lower ATRs tend to make more incremental moves.
With the S&P 500 and Nasdaq now in a power trend, investors can buy stocks with ATRs up to 8%, though they should be wary of being too concentrated in high-octane names.
