A tech company reports earnings that are just slightly above expectations and doesn't materially raise its guidance. The stock goes up more than 13% the next day. No, you're not in the Twilight Zone. But welcome to Sonic Solutions
Sonic Solutions produces and sells software used to create DVDs (and CDs) on desktops, laptops, and workstations. Although Sonic Solutions enjoys a successful bundling partnership with Dell
First-quarter results, though, were pretty respectable. Sales nearly doubled to more than $35 million, while net income was flat and EPS were down a penny from last year. That's admittedly not legendary performance, but it was better than the mean estimates.
Sonic Solutions acquired Roxio in December of last year and intends to launch version 8 of the popular Creator software this fall. What's more, the company is expanding its relationship with Hewlett-Packard
Here's the weird thing about Sonic Solutions -- this is a growing software company that trades at less than 20 times forward estimates. Compare that with other digital media players -- such as Apple
Perhaps part of the problem is that Sonic Solutions' products are sometimes barely visible to the average computer user. For instance, I had to go into my Start menu to see whether my computer came with Sonic software pre-installed -- I've used DVDs and burned CDs before on this computer but never noticed the program involved. It's also possible that the discount stems from Sonic's heavy reliance on Dell, Hewlett-Packard, and Sony
Whatever the case, Sonic is likely worth further investigation, even after today's jump. The company is profitable and cash-flow positive and seems to be building a respectable digital-media business. This is an incredibly competitive and fast-changing market, though, so Fools had best perform careful due diligence before investing.
Further digital Foolishness:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).