QS Research · Michael Burry's Scion Capital analyst template · 2006
Lumentum Holdings Inc. (LITE)
As of 2026-11-08 · 12/15 boxes filled from SEC filings and market data
Conclusion: SHORT
Conviction medium · base case -77% · downside -88% · upside +0%
I use section 13's cycle-normalized EBITDA base ($255.9M for FY2022-FY2026) rather than the TTM base because the valuation mode is cyclical and FY2024 operating income was -$434.0M. At today's 41.7x EV/EBITDA (N27), normalized EBITDA gives $255.9M x 41.7 = $10.67B EV + $0.58B net cash (N23) = $11.25B / 90.70M shares (N5) = $124/share, -77% from $538.59 (N1); TTM EBITDA is $1.16B (N15). Downside uses ex-FY2026 cycle EBITDA of about $129.6M (FY2022-FY2025 average operating income -$106.6M plus $236.2M average D&A) at the same 41.7x, giving about $66/share (-88%), while upside holds TTM EBITDA of $1.16B at 41.7x for about $540/share (+0.2%). The market is treating the AI-optics spike as permanent; the cycle shows a roughly $960M operating-income swing and an 18% gross-margin trough in FY2024 (S28), so normalized earnings, not TTM, are the right anchor. The Marvell all-stock merger (fixed 4.500 exchange ratio, closing H1 2028) adds deal-spread risk and does not change the operating valuation; I would short with medium conviction.
Key numbers
- Share price: $538.59
- Market cap: $48.85B
- Latest financial period: TTM to Sep 26, 2026
- Revenue (TTM): $3.74B
- EV / EBITDA (TTM): 41.7x
- Price / book: 10.68x
The 15 boxes
- ✓ 1. Long-form business notes
Lumentum sells optical/photonic components and systems into cloud and AI/ML data centers, telecom networks, consumer 3D sensing and industrial lasers, and since the FY2026 10-K reports as a single segment (the FY2021 10-K reported two: OpComms and Lasers). The cycle is violent: revenue $1.77B FY2023, $1.36B FY2024, $3.01B FY2026, with operating income swinging from -$434.0M (FY2024) to +$524.8M (FY2026). FY2026 operating income and $751.4M operating cash flow are operating facts; the -$6.94B FY2026 net loss comes from something below the operating line that these sources do not identify, so it must not be used to judge the business. Customer concentration (26.6% and 15.0% of FY2026 revenue) and 79.2% non-US revenue are the structural facts to carry into a normalized valuation.
- ✓ 2. Competitive advantage
Lumentum shows violent cyclical operating leverage, not a demonstrated durable moat: gross profit ran 46% of revenue in FY2022, 18% in FY2024 and 42% in FY2026, and operating income went from +$303.3M to -$434.0M to +$524.8M over the same years. The asset base is real — about 1,000 U.S. and 900 foreign patents as of June 27, 2026, its own wafer fabs plus contract manufacturing, 13,757 employees — but the 10-K names no competitor, admits sole-source supply, and its own risk factor list includes 'our leverage in negotiations with large customers'. FY2026 net income of -$6.94B sits against positive operating income and positive operating cash flow and the data given does not explain the gap, so it cannot be used as a profitability read.
- ✓ 3. 10-Q takeaways
Q1 FY2027 (three months ended September 26, 2026) net revenue was $1,262.6M, +136.5% Y/Y from $533.8M and +25.5% Q/Q from Q4 FY2026's $1,006.3M — that Q4 FY2026 quarter carried a GAAP net loss of $7.2 billion, so the swing to Q1 FY2027 GAAP net income of $360.3M ($3.54 diluted) is a mix of real operating leverage and one-offs. GAAP gross margin 51.0% (non-GAAP 53.2%) and GAAP operating margin 28.5% (non-GAAP 42.3%) versus 34.0%/1.3% GAAP a year ago; the GAAP number includes a $6.9M gain on sale of business and the tax line includes a $37.0M discrete benefit, while R&D absorbed $89.7M of stock-based compensation from an executive-retirement award modification. Q2 FY2027 guidance is numeric and sharply higher: revenue $1.575–1.625B, non-GAAP operating margin 45.0–46.0%, non-GAAP diluted EPS $5.90–6.20. Cash and equivalents fell $771.3M to $1,272.2M and total cash plus short-term investments fell $758.8M to $2.0B, despite $267.7M of operating cash flow, on a $804.4M financing outflow (note conversions) and $234.6M of investing outflow.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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