What happened 

Shares of auction house Sotheby's (NYSE:BID) jumped 11% in May, according to data provided by S&P Global Market Intelligence, after reporting first quarter earnings and a solid series of auction results. And since the company has lowered operating costs, the trend could be toward strong profit growth going forward. 

So what 

In early May, the company reported that first quarter revenue jumped from $106.5 million a year ago to $187.5 million on the back of $71.4 million of inventory sales. And net loss dropped by over 50% to $11.3 million, or $0.21 per share. What investors liked in the quarter is that agency and salary costs were down, which should lead to better margins in quarters with higher revenue.

Illustration of an art auction.

Image source: Getty Images.

On May 22, Sotheby's reported that between May 15 and May 20 the company conducted 14 auction that totaled $816.4 million in sales, with a single piece going for $110.5 million. The strong result indicates that the art market may not be as weak as expected in 2017.

Now what 

Expectations have been rising for Sotheby's bottom line as operating costs have been cut and bidding levels have come in better than expected. In the last 30 days alone expectations for 2017 earnings are up from $1.98 per share to $2.07 per share. 

Sotheby's may be making the right adjustments to lower costs and the fundamental auction market may be better than expected. But the stock is still very expensive at over 25 times this year's earnings estimate. That's what I would be cautious -- but if operational momentum continues, the high stock price may not matter for a very bullish market.