Shares of Fabrinet (NYSE: FN) plunged 8.90% in after-hours trading on Monday, despite the optical manufacturing specialist reporting better-than-expected fourth-quarter results for fiscal year 2025. The sharp decline suggests investors are looking beyond the headline numbers and focusing on concerns about future growth and cash flow generation.

For the fourth quarter ended June 27, 2025, Fabrinet reported: - Revenue of $909.69 million, up 20.8% year-over-year and beating estimates of $884.87 million - Adjusted earnings per share of $2.65, slightly above the expected $2.64 - GAAP net income of $87.21 million

While these results topped analyst expectations, investors appear worried about several factors: 1. Free cash flow decline: Non-GAAP free cash flow dropped dramatically to $4.7 million, down from $70.4 million a year ago, primarily due to increased capital spending and inventory growth. 2. Margin pressures: The company noted that startup costs and new program ramps created cost pressures, which could persist in the near term. 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.

Fabrinet CEO Seamus Grady remained optimistic, stating, "We're encouraged by the growing demand across all areas of our business and remain optimistic that these favorable trends will carry into the first quarter and beyond." However, the market's reaction suggests that investors are taking a more cautious view on the company's near-term prospects.

As Fabrinet continues to invest in capacity expansion and new customer programs, including a partnership with Amazon Web Services, investors will be closely monitoring the company's ability to maintain growth while improving cash flow and operational efficiency in the coming quarters.