Why Volcano Corporation Shares Temporarily Erupted

Volcano shares soar after reporting its first-quarter results. Find out if these results are buy-worthy or if investors should stick to the sidelines.

May 5, 2014 at 1:42PM

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 Volcano (NASDAQ:VOLC), a developer of precision-guided tools designed for use by physicians and nurses, rocketed higher by as much as 10% after reporting its first-quarter results after the closing bell on Friday. Shares have since given back much of their pop and are up less than 2% as of this writing.

So what: For the quarter, Volcano reported a modest 1.4% increase in revenue to $94.5 million from the year-ago period as the company noted a $2.7 million foreign currency headwind, which hampered its top-line growth. Its bottom line, however, went the wrong way with Volcano recording an adjusted loss of $0.12 per share compared to a profit of $0.02 per share in the year-ago period. By comparison, Wall Street was anticipating a slightly narrower loss of $0.11 per share. Looking ahead, Volcano's Q2 forecast of $102 million-$104 million in revenue and an EPS loss of $0.04-$0.06 appears slightly light on the revenue front compared to the Street's estimate of $104.8 million, but its full-year reaffirmation remains in line with expectations.

Now what: On one hand we have a devices company that introduced a handful of new and innovative products during the quarter. These products should help sustain midsingle-digit growth in an otherwise difficult reimbursement environment. On the other hand, the company's guidance wasn't all that impressive aside from the fact that it didn't really report worse-than-expected news as it had done in previous quarters. I'm not a fan of rewarding a company simply because its results were less bad than expected. Bad is bad and losses are losses. Until Volcano can work its way back toward profitability I'd have to suggest sticking to the sidelines.

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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool recommends Volcano. 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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