Why Rocket Fuel, Inc. Shares Roared Higher

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 Rocket Fuel, (NASDAQ: FUEL  )  jumped more than 13% Thursday after analysts at Needham upgraded the artificial intelligence advertising solutions stock from buy to strong buy, simultaneously assigning a $75 per share price target.

So what: Investors are right to be excited considering that the number represents a more than 30% premium to today's close, which settled just under $57 per share.

To explain the move, Needham's Kerry Rice noted the firm's channel checks remained positive across the entire advertising technology sector, and that they believe recent concerns revolving around the "future of cookies and an industry shift toward a self-service license model [are] overblown."

Rice also noted that part of Rocket Fuel's recent fall can be blamed on the poor performance of other ad tech plays, perhaps most notably, video advertising specialist Tremor Video, which fell 49% in a single day last month following its own disappointing third-quarter results.

Now what: Remember, however, that Rocket Fuel isn't expected to turn profitable until 2015. While the company seems to be doing a decent job growing its top line, at this point, with its efforts to grab market share, I think the uncertainties around its business model from a long-term perspective make this too risky a bet for my taste.

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10/22/2014 4:00 PM
FUEL $17.11 Down -0.12 -0.70%
ROCKET FUEL INC US… CAPS Rating: ****

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