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CIENA Corporation (Nasdaq: CIEN) was once among the highest of high flyers during the tech bubble years of the late 90s, but the stock hasn’t been anywhere close to levels it reached in 1999 and 2000. In 2006, the stock did a one for seven reverse split. When you take that into account, the adjusted stock price back in October 2000 was over $1,000 compared to Friday’s closing price of $18.52.
Regardless of where the stock was back then, I do see an opportunity to make money on CIEN stock in the coming months. On the daily chart, we see that the stock gapped higher last June and the recent pullback has almost filled the gap and I look for the area to act as support now.
The weekly CIEN stock chart shows two more layers of potential support in the $17-$18 range. The first one is in the form of a previous high back in the summer of 2012. The second one is a trendline that connects the closing lows over the last few years and that trendline happens to be right around the same level as the gap level from the daily chart.
With these three layers of support providing a limited down side and with the stock being oversold on both the weekly and daily charts, I like the risk/reward possibilities for CIEN over the next few months.
CIEN is scheduled to report earnings on June 6, so you need to be aware of that date. The company surprised investors with their last earnings report, reporting earnings of $0.13 per share compared to the $0.06 the analysts had predicted.
The company has righted the ship, or so it seems. They have experienced earnings growth for the last three years and are expected to grow 63% this year. The company has experience sales growth of 10% a year for the last three years. Perhaps the most impressive fundamental statistic for CIEN is the ROE is almost an even 100%.
Looking at the sentiment indicators, the sentiment is relatively pessimistic toward CIEN. The short interest ratio is currently at 4.7 and the put/call ratio is higher than 96% of the readings for the past year. The analyst ratings are moderately optimistic with 17 of 24 analysts ratings the stock a “buy” and the other seven rating it a “hold”.
I would look to buy the stock at the current level with a target of at least $27 a share. I would set a stop-loss at a close below the $17 level as this would mean that all three of the support levels had given way. Just be prepared to make adjustments come June 6 in case of any surprises due to the earnings report.
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