When a stock's share price is lower than a North Dakota thermometer in February, investors tend to give it the cold shoulder. But as fortunes change and the market warms to a stock's prospects, its price can heat up in a hurry. Unfortunately, it's hard to tell that a stock is melting investors' hearts until after it's made that upward leap.
Taking the market's temperature
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions of 180,000-plus members, offer a great way to monitor investor sentiment. Following a CAPS rating trend, we can find previously low-rated companies that have recently enjoyed a bump in investor confidence and see whether they're truly heating up -- or headed back to the deep freeze.
Recently, flash memory specialist Fusion-io (NYSE: FIO ) moved from a two-star rating on CAPS to four stars, suggesting its latest strong earnings report portends even better gains ahead. Obviously, you don't automatically buy the stock on that data point alone, but rather use the heightened interest as a starting point for further research. Yet if some of the best investing minds are taking notice of this stock and upgrading their prospects, maybe we should, too.
Caution: Contents may be hot
Although it recorded a loss of $0.03 per share compared to a $0.06 per share profit a year ago, sales for Fusion-io surged 49% to almost $107 million in Fusion-io's second quarter, beating analyst expectations by 11%. Its shares stand 39% higher today than they did before the earnings report.
The big news is big data. According to IBM, we create 2.5 quintillion bytes of data every single day. In fact, helping businesses get a handle on the information flowing into their operations is becoming one of the cornerstones of IBM's future growth plays. Big Blue's business analytics division saw revenue jump 28% last quarter, making it the company's fastest-growing segment.
You won't find the market analysts at IDC disagreeing. They estimate big-data technology and services will grow at a 40% compounded annual growth rate, going from a rather sleepy $3 billion cottage industry in 2010 to almost $20 billion by 2015!
Cold fusion reactor
Fusion-io's flash memory cards help accelerate the speed of conventional servers by acting as a high-performance cache. Typically, data centers house all their data in huge storage arrays such as those made by EMC (NYSE: EMC ) and wait for the data to be called upon as needed. Fusion-io's software transforms the servers into blazing-fast data-acceleration appliances, and is behind Facebook's (Nasdaq: FB ) data centers and Apple's iCloud service. The risk is that those two also make up more than 50% of Fusion-io's revenue.
The flash memory maker is working to diversify its customer base, and just signed up NetApp (Nasdaq: NTAP ) to assist in improving its storage solution performance.
Follow the money
But the kind of money big data is generating also attracts more competition, from established players like EMC and VMWare (NYSE: VMW ) , which just purchased analytics platform service provider Log Insight, to upstarts like TIBCO Software and recently public Splunk.
At 48 times earnings estimates, Fusion-io isn't cheap, and though shares have rocketed off their lows, almost doubling in value, they still sit some 30% below their 52-week highs. The strong sales growth it recorded last quarter along with the rapidly rising guidance it issued suggests it believes there's more growth to come. So does CAPS member BCNMatador who says that despite the big jump in the stock, he "really believe[s] in the big data/cloud revolution" and Fusion-io will lead the way.
While I've also rated the flash memory maker to outperform the broad indexes, tell me in the comments box below whether you agree that there are still big gains to be made in big data.
Checking the mercury
Both Apple and Facebook have realized the benefits big data brings to their business, and now you can find out how their businesses can benefit you. The Motley Fool has created premium reports on both Apple and Facebook that explore the risks, challenges, and opportunities they present investors. If you're looking for a recommendation on how to play Facebook and Apple, along with continuing updates and guidance on whenever news breaks, click here now.