February 20, 2013
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 HollySys Automation Technologies (NASDAQ: HOLI ) , a manufacturer of automation and control technologies for the railway and nuclear industries, had a wild day after reporting its second-quarter results, losing as much as 7% before rallying as much as 15%.
So what: For the quarter, HollySys' revenue jumped nearly 9% to $87.2 million while gross margin fell 640 basis points to 32.1%. Total profit dipped to $0.24 from $0.37 in the previous period. The lone Wall Street expectation on Hollysys had been calling for a profit of $0.28 on $101.6 million in sales. HollySys' management blamed worse-than-expected macroeconomic weakness for its subpar results.
Now what: If you're wondering why on Earth HollySys shares are up, that was answered when the company provided its 2013 guidance of $385 million to $410 million in revenue and $63 million to $67 million in net income ($1.13-$1.20). Revenue is right in line with the Street's expectations, but profit is noticeably higher than the current consensus estimate of $1.10. While I agree that there's definitely value to be had in parts suppliers to the rail industry (especially in China), I have a suspicion that margins could get a bit worse here before they get better and would suggest waiting for a sizable pullback before considering a position.
Craving more input? Start by adding HollySys Automation Technologies to your free and personalized Watchlist so you can keep up on the latest news with the company.
Is this a stock you could buy right now?
The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.