Why Mellanox Shares Skyrocketed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Israeli chipmaker Mellanox Technologies (Nasdaq: MLNX  ) soared a staggering 41% on Thursday after its quarterly results and outlook easily topped Wall Street estimates.

So what: Mellanox shares have slumped in recent weeks on worries over slowing growth, but a massive first-quarter beat -- EPS of $0.99 versus the consensus of $0.74 -- coupled with a strong third-quarter outlook is quickly easing those concerns. In fact, particularly strong storage, data, and cloud-computing tailwinds pushed revenue over $100 million for the very first time, prompting at least 10 Wall Street analysts to raise their price targets on the stock.

Now what: For the third quarter, management now expects revenue of $150 million-$155 million, versus the average analyst estimate of just $105 million. "We believe this growth demonstrates the broader market acceptance of both our FDR 56Gb/s InfiniBand and 10 and 40 Gigabit Ethernet solutions," Chairman and CEO Eyal Waldman said. "More customers realize that 'fast interconnect' provides them with a higher return-on-investment and lower total cost of ownership." Of course, with the stock soaring to an all-time high today and up a whopping 220% over the past year, I'd wait for a much larger margin of safety before buying into that bullishness.  

Interested in more info on Mellanox? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

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