Take Long View

What: Castlight Health (NYSE:CSLT), a cloud-based software provider focused on enterprise healthcare management, traded 10% lower today after it reported second quarter results.

So what: Revenue for the quarter jumped 76% higher over the same time last year and came in at $18.5 million, which was higher than the $17.8 million that analyst were expecting. Non-GAAP gross margins expanded to 58.3%, up sharply from the 32.6% recorded last year as sales volume continued to grow. Net loss per-share came in at $0.19, which was a penny below expectations.

Castlight also noted that they are making good progress in recruiting large customers to its platform, as more than 10% of the Fortune 500 is now using Castlight's technology.

While these results look pretty good, today's share price movement looks to be related to guidance for the third quarter. The company expects to generate between $19.2-$19.5 million in revenue, which is lower than the $19.77M that analysts are currently modeling. Net loss next quarter is expected to land between $0.17 and $0.18 per share.

Now what: Castlight's stock has been an absolute horror show since becoming public in early 2014, as investors who bought in on the first day are currently staring at huge losses.

CSLT Chart

And yet, even with today's downward movement, shares are still trading hands at a very expensive 12 times sales, indicating that investors are still expecting huge growth in this company's revenue. 

On the bright side, Castlight's revenue growth has been very impressive, and its certainly good to see that the company is able to convince large customers to use its platform. While the company is still losing money from operations, the balance sheet looks to be in quite good shape, holding more than $164 million in cash and no long term debt. 

While long-term shareholders have been mauled by this stock since it went public, I think today's results do show reasons for optimism. If the company can continue to rapidly grow its revenue and continue to expand margins, then Castlight could make for an intriguing opportunity. However, this fool wants to see the company prove that it can translate its terrific revenue growth into profits before calling the shares a buy.

 

Brian Feroldi 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.