Can Ellie Mae Earnings Keep the Stock Soaring?

Ellie Mae helps automate the mortgage business. Image source: Getty Images.

The mortgage business is an important source of revenue for banks across the country, and to help banks and other mortgage lenders manage their business, Ellie Mae (ELLI) provides software and systems support that streamlines the complex process of making mortgage loans and complying with the vast set of rules and regulations connected to the process. Coming into Thursday's second-quarter financial report, Ellie Mae shareholders have enjoyed a record run to all-time highs, and they've boosted their expectations for what they want to see from the company from a fundamental standpoint. Let's take an early look at Ellie Mae and what investors should expect from the company this quarter.

Stats on Ellie Mae

Data source: Yahoo! Finance.

How high can Ellie Mae earnings soar?

In recent months, investors have become more optimistic about Ellie Mae earnings, adding $0.05 per share to their second-quarter estimates and making similarly sized increases to their 2016 and 2017 full-year projections. The stock has kept performing well, climbing 8% since mid-April.

Some of the company's positive momentum from a business standpoint came from Ellie Mae's first-quarter results. The mortgage-tech provider enjoyed a 36% jump in revenue to set a new record, and Ellie Mae managed to avoid the year-over-year decline in earnings per share that many investors had feared. Boosts in user counts and revenue per user both contributed to gains on the top line, and efforts to reach out to industry professionals through its user conference should continue to bear fruit in the future. Increases to Ellie Mae's guidance for sales and net income for the full year should arguably have spurred more enthusiasm among investors in the stock, but the share price actually fell after the report; investors apparently had wanted to see more.

Ellie Mae is doing its best to spur greater business in the mortgage industry in order to help its customers and encourage greater use of the company's systems. With metrics like its Ellie Mae Millennial Tracker, the mortgage-tech platform provider is focusing on the key demographic, which is notorious for not having had the same level of homeownership as previous generations. The interactive online tool provides information on millennial loan trends in the U.S., and other barometers of activity in the mortgage market are also helping to build up the Ellie Mae name both within the industry and among the general public.

Will the mortgage market help Ellie Mae?

Macroeconomic factors have also conspired to put Ellie Mae in a stronger position. Earlier this year, most bond market participants expected the Federal Reserve to tighten monetary policy quite aggressively, responding to U.S. economic strength. Yet key events like the U.K. Brexit vote to leave the European Union have made policymakers uncertain about the prospects for the global economy, and the Fed has therefore been much more measured in its evaluation of the appropriate path for interest rates. Low rates from the Fed have kept mortgage rates low, and the record-low rates we've seen on 10-year Treasury bonds could spur yet another wave of mortgage refinancing activity that in turn could spur mortgage lenders to adopt Ellie Mae's technology.

One possible future course for Ellie Mae would be to start working harder at consolidating the industry. Ellie Mae has a strong market share of more than 20%, but the highly fragmented nature of mortgage technology services gives the company an opportunity to make strategic purchases to bolster that market share and get even better penetration among financial institutions.

In the Ellie Mae earnings report, investors will want to watch closely for signs that the company is getting increased adoption from major players in the financial industry. With new opportunities emerging in the mortgage market, the mortgage-tech specialist's results will be a good gauge of how well Ellie Mae has done in building up its reputation among current and prospective financial-institution customers.