Please ensure Javascript is enabled for purposes of website accessibility

Why Datalink Corporation Stock Skyrocketed

By Alex Planes - Jul 25, 2014 at 12:20PM

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

Is this meaningful or just another movement?

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 Datalink (NASDAQ: DTLK) surged to a monstrous 27% gain at the opening bell this Friday, but have since settled into a pop of only 17% by early afternoon, after the company released its second-quarter earnings results.

So what: The data solutions specialist reported revenue of $159.4 million for the quarter, which was an 8% year-over-year improvement and well above Wall Street's expectation of $149.6 million. The company's adjusted earnings of $0.22 per share also blew past Wall Street's consensus estimate of $0.13. Looking ahead, Datalink expects to earn between $150 million and $160 million in revenue for the third quarter, which would result in EPS in the range of $0.16 to $0.22. Wall Street had projected $148.4 million on the top line and $0.16 on the bottom line, so Datalink appears prepared to put together another solid double beat for the quarter now in progress.

Now what: Datalink's shares have been prone to wild fluctuations with alarming regularity over the past year, crashing on bad earnings and skyrocketing on good earnings. Despite all that volatility, today's pop has returned the stock more or less to breakeven for the past 52 weeks -- but it's important to keep in mind that virtually all of this movement has been related to Datalink's valuation, which has marched (or rather leapt) in virtual lockstep with the company's share price. On the other hand, Datalink's price-to-free cash flow ratio was in the single digits before today's pop, which is a lot more reasonable than the headline P/E ratio. Based on this past year's volatility, I'd tread cautiously, as another big drop could be in the cards if Datalink's optimistic projections can't hold up for the third quarter. Don't ignore Datalink, but don't dive in without first digging deeper.

Alex Planes has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
394%
 
S&P 500 Returns
127%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

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

Premium Investing Services

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