Could Acacia Communications (ACIA - Free Report) , the hottest IPO of 2016, still offer significant upside in 2017?

Many investment banks believe so. And I think the odds are pretty good too. That's why I'm accumulating shares of Acacia over 45% off of its all-time highs above $125.

This maker of optical interconnect products for cloud infrastructure operators and content and communication service providers -- think customers like Cisco (CSCO- Free Report) , Facebook (FB - Free Report) , Amazon (AMZN - Free Report) , Verizon (VZ -Free Report) and Germany's ADVA -- delivered its second earnings report as a public company in early November and the analysts welcomed the outlook.

The consensus for 2017 EPS shot up over 22% from $2.34 to $2.87, making it a Zacks #1 Rank Strong Buy again.

For a newly public company like this, the analysts will be slow to raise expectations too high until they get to know management and the company's execution history. Since 2016 saw nearly 100% sales growth for Acacia, many doubt this can be repeated and so the consensus projection right now is for 33% revenue growth.

But at forward EPS of $2.87, the stock is trading at under 25X. For 33% top line growth, that's growth at a very reasonable price.

And my sense is that sales will grow faster because Acacia’s optical networking products will be in high demand as the cloud buildout demands more 100G speed. The 100 Gigabit Ethernet protocol is designed to deliver data at 100 gigabits per second.

Here’s a chart of Acacia’s rise to investing stardom since the May IPO around $30 and the subsequent 62% fall back to reality...

The Acacia Opportunity

The stock has pulled back quite a bit, but the growth story is still intact. Let's look at five "technical" facts first as they tell their own story of what the institutions think of the fundamentals:

1. Stock down over 25% since secondary of 4.5 million shares that was priced at $100 -- when it was trading $90! That was BOLD!

2. 180-day lockup expiration was Nov 9 and shares have held $65-67 area, even after Nov 4 lows of $61.80.

3. Earnings were Nov 10 and they certainly helped support stock above that $65-67 support area.

4. Shares tested 62% retracement of $27 all-time lows (since May IPO) to the $128 all-time highs over the summer. I don't get precise with Fibs and the market wasn't either, with the 62% RT in the mid-$60s and the recent low, during the early November market swoon, at $61.80.

5. Shares ran to $79 in late Nov, then retested $65 in early Dec for a nice bounce

The bottom line: A lot of big players probably got hurt on the summer run-up above $100 and into the secondary offering. The stock had been trading above $100 from mid-August through September when the secondary came.

But my sense is that if anybody was still itching to sell before or after the lockup expiration, they already did. There is one more caveat on that front coming up. Meanwhile take a look at the sales and earnings estimates...

The Analysts Before and After Earnings

Several research analysts were busy upgrading the company before the secondary and they haven't changed their tune since.

Bank of America restated a Buy rating and bumped their PT from $88 to $130 in a research report on September 5.

Deutsche Bank raised their price target on Acacia from $90 to $125 and gave the stock a Buy rating in a research report on September 9. They reiterated their stance on Nov 30.

Needham & Company raised their price target from $100 to $125 and gave the stock a Buy rating in a research report on October 11, right before the secondary. They reiterated their stance on Nov 26.

Goldman Sachs restated a Neutral rating on shares of Acacia on October 12, the day the secondary was announced.

Cowen & Co. reiterated their Outperform rating on Nov 10 and raised their PT from $90 to $99.

Finally, William Blair analysts raised their 2018 revenue expectations and took a more bullish view of Acacia’s revenue opportunities and operating model post-earnings. "We are maintaining our expectations for 30% revenue growth in 2017 while moving 2018 growth to 20% from 17%." They reiterated their Outperform rating.

The Caveat

There is another lock-up expiration on Jan 5 where early investors will be eligible to sell as much as 24.6 million shares. While I am accumulating shares under $70, we don't know what kind of selling we'll see by the big guys and gals in early January. It could bring lower prices, or it may not as they decide to hold on for the growth story and bigger gains.

Maybe even a revisit of the old highs above $125 in 2017. That's my bet.