Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Sotheby's Shares Jumped 14% in February

By Travis Hoium - Mar 6, 2017 at 6:37PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Earnings were better than expected, but with revenue declining, Sotheby's has a lot to prove to live up to its current valuation.

What happened 

Shares of auction house Sotheby's ( BID ) jumped 13.6% in February, according to data provided by S&P Global Market Intelligence, after a fourth-quarter earnings report wowed investors. And given the company's momentum, 2017 could be a great year for the company. 

So what 

Revenue fell 8% in the fourth quarter, to $308.7 million, but Sotheby's swung from a loss a year ago to a profit of $65.5 million, or $1.20 per share. Management's focus on lowering costs is helping offset a decline in the art market, and it could give the stock a lot of leverage in the future if the art market picks up. 

Worker examining a pile of diamonds.

Image source: Getty Images.

There are a couple of high-profile auctions coming up in the next few weeks, and we'll see if that will lead to some top-line growth going forward at Sotheby's. If the top line improves, we can expect strong improvement on the bottom line given the lower cost base. 

Now what 

Declining costs are a big help to Sotheby's, but the stock is still expensive in today's market. Shares trade at 37 times earnings, and if the art market doesn't pick up, the company's operational performance may not live up to what the market has priced in right now. And with revenue down in both of the last two years, this may not be a stock that's worth paying a premium for right now. Declining costs are good, but it's a temporary fix, and investors will want to see more top-line improvement before getting too bullish on the company's future. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Sotheby's Stock Quote

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.