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.

After climbing a crazy 19% in just the past two trading days, shares of LED lighting specialist Revolution Lighting Technologies (RVLT) flickered out today, losing nearly 5% in morning trading. If you bought into the company's quarterly numbers and rosy outlook last week, you may have taken a plunge a little too early.

Bleeding red
Nexxus Lighting may have become Revolution Lighting in 2012, but the company has yet to see any momentous change in its business performance. Revolution's third-quarter revenue climbed a dizzying 325% year over to year to $5.3 million, which probably got the market excited. But the real story starts thereafter.

The company's gross margin improved only a percentage point to 26% even on such torrid revenue growth. Well, Revolution's cost of sales, or input costs, climbed 333%, so higher incremental sales failed to convert to higher profits. Worse yet, Revolution's bottom line swung to a loss of $3.1 million from a small profit of $0.3 million a year ago. Adjusting for a one-time gain of around $1 million last year still reveals that Revolution's losses nearly quadrupled year over year. Ouch!

What helps
To make matters worse, Revolution is hugely cash flow negative, with its cash from operations for the first nine months running into a negative $5.2 million. The good news is that the company has nearly $5.8 million of cash in hand, which should come handy to fund future growth plans. Revolution hasn't done too badly on that front, having acquired LED solutions provider Seesmart Technologies in December last year, followed by LED maker Relume in August, and LED lighting products portfolio from CMG Energy Solutions in October this year. These acquisitions played a major role in boosting Revolution's third-quarter revenue.

Why I'm not convinced
For a company that's still in the development stage, revenues matter more than profits. So I'll give Revolution the benefit of the doubt for its growing top line and recent acquisitions. But I can't seem to put faith in management yet. While the company earlier expected "a continued acceleration in revenue and profitability as the year progresses", the third quarter proved otherwise. Revolution's losses have nearly doubled to $13.5 million over the first nine months.

I'm not too sure how management will achieve its ambitious target of 35% gross margin next year, given the high costs that the company is grappling with. But if Revolution gets even close to that target, it could mark the company's turnaround. The LED business has huge potential. Research firm ResearchMoz projects the LED lighting market to grow at a whopping 45% clip annually through 2019.

To tap the opportunity, Revolution must get a grip on costs and shake its cash boxes up. Until it does that, higher sales won't be of much value. And with the stock up a whopping 400% year to date, I'm not going to even get near it until I see a profit and positive cash flow on Revolution's books. At its current share price and unrealistic multiples, Revolution is just too hot for me to handle.