Why ModusLink Global Solutions, Inc. Shares Marched Higher

Is ModusLink's pop meaningful? Or just another movement?

Mar 5, 2014 at 1:20AM

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 ModusLink Global Solutions, Inc. (NASDAQ:MLNK) jumped 25% Tuesday after the company turned in encouraging fiscal second quarter 2014 results.

So what: Though quarterly revenue fell 4.6% year-over-year to $194 million, ModusLink managed to swing to a $0.02 per share profit this time, compared to a $0.29 per share loss in the same year-ago period.

Now what: The company blamed the revenue decline primarily on lower sales from a software client that not only reorganized its supply chain, but also experienced high unit volumes in the same quarter last year after a major product launch. In addition, ModusLink's gross margin crept up from 10% to 11.6% over the same period, driven by cost reduction actions and lower professional fees. In short, this doesn't seem to be a problem underlying ModusLink's broader business. 

Despite ModusLink's restored profitability and the stock trading at just 0.3 times last year's sales, I'm still not quite intrigued enough to dive right in today. For now, as long as ModusLink is still susceptible to significant revenue swings from individual customers -- an often necessary pitfall of investing in small-cap stocks -- I prefer to keep it on my watchlist to keep tabs on its progress over the next few quarters. This in mind, if it can continue making strides toward sustainable long-term profitability, it could easily still reward investors from here.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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