Why Ellie Mae Inc. Shares Could Pop 25%

Does this analyst make a good case? Or is it just more noise from Wall Street?

Jun 30, 2014 at 2:09PM

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Ellie Mae (NYSE:ELLI) gained slightly today after Dougherty upgraded the mortgage industry software specialist from neutral to buy.

So what: Along with the upgrade, analyst Raghavan Sarathy planted a price target of $39 on the stock, representing about 26% worth of upside to Friday's close. So while contrarian traders might be turned off by Ellie Mae's rising price in recent months, Sarathy's call could reflect a sense on Wall Street that strengthening industry tailwinds give the stock plenty of room to run.

Now what: Dougherty boosted its 2014 adjusted earnings per share/revenue estimate for Ellie from $0.95/$146.4 million to $0.98/$149.4 million and its 2015 view from $1.16/$172.8 million to $1.25/$185.1 million. "We have been cautious on Ellie Mae shares this year due to difficult mortgage origination environment and back-end loaded nature of the revenue outlook but after recent meeting with the management at the company's HQ, we came away with the opinion that the company feels confident about the 2H outlook," said Sarathy. "Further, revenue growth could accelerate next year along with margin expansion as mortgage origination volume stabilizes and expense growth moderates." When you couple that upbeat outlook with Ellie Mae's rock-solid balance sheet and still-reasonable forward P/E in the low 20s, it's tough to disagree with Dougherty's bullishness. 

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Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Apple and Ellie Mae. The Motley Fool owns shares of Apple. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

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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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