Lumentum (NASDAQ:LITE), a company backed by Nvidia (NASDAQ:NVDA), is rebounding after slipping into a local bear market between May and mid-July, when it fell to $594. The stock has since recovered, mirroring gains across other technology names as focus shifts to its upcoming earnings report.
Lumentum Earnings to Demonstrate Strong Growth
Nvidia, the biggest company in the world, invested in Lumentum a few months ago, citing its important role in the data center industry, where it provides solutions like optical transceivers, optical lasers, optical circuit switches, and coherent optical modules. Its top customers include companies like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Amazon (NASDAQ:AMZN).
The company’s performance will be in the spotlight this week when it publishes its financial results, which will help to justify its premium valuation. Lumentum’s forward price-to-earnings ratio stands at 108, much higher than other top companies, including popular names like Nvidia and AMD.
This premium valuation is largely supported by Nvidia’s backing and the company’s exceptional growth prospects. Importantly, its major clients have committed to expanding their capacity, providing greater visibility into future revenue.
Analysts remain highly bullish, with the average estimate from 17 analysts calling for revenue of $987 million, representing a 107% year-over-year increase. Growth is expected to remain elevated beyond the current quarter, with annual revenue projected to rise 81% this year and another 90% next year.
If the company delivers on these forecasts, the rapid expansion could help justify its lofty valuation, although the stock remains vulnerable to a sharp correction if growth expectations fall short.
Its profits are also expected to keep rising, with quarterly profit rising to $2.97, much higher than the 88 cents it made last year.
Lumentum Stock Technical Analysis
The daily chart shows that the LITE stock bottomed at $595 on July 29 to a high of $926, its highest level since June 16. It has already jumped above the 50-day and 100-day Exponential Moving Averages (EMA), which is a bullish aspect.
Most importantly, the stock formed a bullish flag pattern, which is comprised of a vertical line and a descending channel. It has already moved above the upper side of the descending channel and flipped the Supertrend indicator from red to green.
Therefore, the path of the least resistance for the shares is bullish, with the main target being the year-to-date high of $1,086. This target is slightly lower than the targets made by companies like Northland Securities and Mizuho.
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