Why DealerTrack Technologies, Inc. Shares Popped Today

Is DealerTrack's jump meaningful? Or just another movement?

Feb 20, 2014 at 9:54PM

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 DealerTrack Technologies, (NASDAQ:TRAK) jumped more than 15% Thursday after the company turned in solid fourth-quarter results and encouraging forward guidance.

So what: Quarterly revenue rose 23.9%, to $126.1 million, which translated to adjusted net income of $0.27 per diluted share. Analysts, on average, were looking for earnings of $0.27 per share on sales of $123.17 million.

In addition, DealerTrack expects 2014 revenue between $800 million and $816 million, or an increase of 66% to 69% over last year. That should translate to adjusted net income per share between $1.42 and $1.53. The midpoint of both ranges is significantly higher than analysts expectations for earnings of $1.41 per share on sales of $561.82 million.

Now what: After reminding investors of their pending acquisition of Dealer.com, DealterTrack CEO Mark O'Neil stated, "Our successes and recent acquisitions provide us with a firm foundation as we head into 2014 and give us confidence in our ability to deliver accelerated growth this year as we execute on our strategy."

As it stands, with shares currently trading around 37 times this year's expected earnings, I prefer to let the dust settle before diving in for the time being. But that doesn't necessarily mean that current shareholders should take all their chips off the table; over the long term, if DealerTrack can successfully translate its huge top-line growth to a just-as-impressive boost in earnings, I think the stock should be able to continue rewarding patient investors.

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Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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