Why Ellie Mae, Inc. Shares Popped

Is Ellie Mae's jump meaningful? Or just another movement?

Feb 14, 2014 at 6:59PM

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 Ellie Mae, (NYSE:ELLI) soared nearly 18% Friday after the company turned in solid fourth-quarter results and full-year guidance.

So what: Quarterly revenue came in at $30.4 million, which translated to adjusted net income of $5.3 million, or $0.18 per diluted share. Analysts, on average, were expecting earnings of $0.18 per share on sales of $29.84 million.

For the first quarter, Ellie Mae anticipates revenue in the range of $30.5 million to $31.5 million, with adjusted net income per share of $0.13 to $0.15. By comparison, analysts were modeling significantly higher Q1 earnings of $0.21 per share on sales of $32.81 million.

However, Ellie Mae promised to make up the difference with expected full-year 2014 revenue in the range of $150 million to $153.5 million, and adjusted net income per share of $1.08 to $1.11. The midpoint of both ranges came in above analysts' estimates, which called for 2014 earnings of $1.09 per share on sales of $151.5 million.

Now what: Taking the midpoint of Ellie Mae's guidance, shares don't look particularly cheap trading around 27 times this year's expected earnings. Keep in mind, however, that Ellie Mae also grew its cash pile by nearly a third last year, and now holds more than $136 million in cash and investments -- with no debt on its balance sheet. All things considered, I think that's a well-deserved premium for a high-quality business, and Ellie Mae stock should continue to reward patient long-term investors.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Ellie Mae. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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