Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of HollySys Automation Technologies (NASDAQ:HOLI), a manufacturer of automation and control technologies for the railway and nuclear industries, had a wild day after reporting its second-quarter results, losing as much as 7% before rallying as much as 15%.
So what: For the quarter, HollySys' revenue jumped nearly 9% to $87.2 million while gross margin fell 640 basis points to 32.1%. Total profit dipped to $0.24 from $0.37 in the previous period. The lone Wall Street expectation on Hollysys had been calling for a profit of $0.28 on $101.6 million in sales. HollySys' management blamed worse-than-expected macroeconomic weakness for its subpar results.
Now what: If you're wondering why on Earth HollySys shares are up, that was answered when the company provided its 2013 guidance of $385 million to $410 million in revenue and $63 million to $67 million in net income ($1.13-$1.20). Revenue is right in line with the Street's expectations, but profit is noticeably higher than the current consensus estimate of $1.10. While I agree that there's definitely value to be had in parts suppliers to the rail industry (especially in China), I have a suspicion that margins could get a bit worse here before they get better and would suggest waiting for a sizable pullback before considering a position.
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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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