Why Magic Software Enterprises Ltd. Stock Jumped 15% Today

Is Magic Software's pop meaningful or just another movement?

Steve Symington
Steve Symington
Feb 2, 2015 at 4:27PM
Technology and Telecom

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 Magic Software Enterprises Ltd. (NASDAQ:MGIC) jumped as much as 15% Monday after the mobile and cloud-enabled business software specialist announced better than expected fourth-quarter results.

So what: Quarterly revenue climbed 3% year over year to $42.5 million. That translated to a 6% decline in adjusted net income to $5.6 million, or $0.13 per share. That might not sound particularly encouraging, but analysts only expected earnings of $0.11 per share on sales of $42.35 million.

Now what: Noting Magic Software's results would have been significantly better had it not been for a negative $1.5 million hit to revenue from currency devaluation, CEO Guy Bernstein stated he was "pleased" with the operating results. Even so, Bernstein said he is "even more excited by what's ahead," as the company should be well positioned to accelerate growth as more businesses transition legacy systems to enterprise mobility and cloud-centric operations.

While Magic Software is not providing specific forward guidance for now, Bernstein suggested in the quarterly conference call that revenue growth is expected to be somewhere in the 12% to 14% range without accounting for acquisitions. If that turns out to be the case, with shares of Magic Software trading below 12 times next year's expected earnings, it seems the market is justified in its optimism today.