Why Shares of Revolution Lighting Technologies Inc. Stock Lit Up Last Week

Tread lightly when it comes to this company’s guidance.

Mar 18, 2014 at 10:04AM

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 LED maker Revolution Lighting Technologies (NASDAQ:RVLT) were electrified by as much as 8.5% last Friday following its fourth-quarter-earnings results and outlook.

So what: Revenue soared 610% to $7.1 million mostly due to acquisitions. The organic revenue jumped an impressive 47%. Adjusted net loss was $2.4 million, compared to $1.4 million last year, but gross profit exploded to $2.5 million compared to just $0.15 million a year ago.

Revolution Lighting forecasted $110 million in revenue for 2014 with a 40% rise in organic growth over 2013. Of this amount, it expects earnings before interest, taxes, depreciation, and amortization, or EBITDA, to be 12%-15%, or between $13.2 million and $16.5 million. Furthermore, the company stated that it has a "robust pipeline of close to $200 million in actionable opportunities over the next 12 to 18 months."

Now what: The EBITDA guidance sounds impressive, though with with Revolution Lighting having a market cap over $300 million, it seems like it may be priced in already. On top of that, Fools should take any guidance from Revolution Lighting with a large grain of salt.

Back in August, CEO Robert V. LaPenta told investors to "expect a continued acceleration in revenue and profitability as the year progresses." The company had just reported $7.4 million in revenue. The very next quarter, revenue plunged to $5.3 million. With this fourth-quarter report, revenue continues to lag even the second quarter's results -- no acceleration has taken place.

In the beginning of October, Revolution Lighting Technologies sought to reassure investors again. CFO Charlie Schafer explained that the drop in sales in the third quarter was due to "certain international orders coming in later than expected," but the fourth quarter is expected to see more than $10 million in sales.

Then on Nov. 8, Revolution Lighting again reiterated the $10 million forecast. With the quarter nearly half over at that time, one would have thought that the company had a pretty good idea of how the quarter would end.

On Feb. 10, Revolution admitted that the fourth quarter would fall shy of expectations. Once again it stated, "The Company had expected revenues in the range of $10 million for the fourth quarter, but a large international order has been delayed."

Considering that Revolution has had such a poor track record, whether that is through its own fault or just the nature of the order flow of its business, it's difficult to put much faith in full-year guidance when visibility is lacking for much shorter periods of time. Going forward, Fools should pay more attention to historically reported numbers over guidance.

Forget dealing with questionable guidance
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Nickey Friedman 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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