Shares of Fabrinet (FN) plunged 12.30% in Tuesday's trading session, following the release of its fiscal fourth-quarter 2025 results. Despite beating expectations on both revenue and earnings, investors appeared concerned about several key issues that could impact the company's future growth and profitability.

Fabrinet, a leading provider of advanced optical packaging and precision optical, electro-mechanical, and electronic manufacturing services, reported Q4 revenue of $909.69 million, up 20.8% year-over-year and surpassing estimates of $884.87 million. Adjusted earnings per share came in at $2.65, slightly above the expected $2.64. However, several factors contributed to the sharp stock decline:

1. Free cash flow concerns: Non-GAAP free cash flow plummeted to $4.7 million from $70.4 million a year ago, primarily due to increased capital spending and inventory growth. This significant decrease, despite strong revenue growth, has raised questions about the company's capital efficiency and future investment needs. 2. Margin pressures: The company noted that startup costs and new program ramps created cost pressures, which could persist in the near term. This has led to concerns about potential margin compression as Fabrinet continues to expand. 3. Guidance concerns: For Q1 fiscal 2026, Fabrinet projects revenue of $910-950 million and adjusted EPS of $2.75-$2.90. While generally in line with expectations, some investors may have hoped for more robust growth given the company's recent performance. 4. Supply constraints: The company highlighted temporary supply constraints for some critical components, particularly affecting its Datacom revenue. This issue is expected to impact near-term performance, although management believes it will be resolved within one or two quarters.