Please ensure Javascript is enabled for purposes of website accessibility

Why ShoreTel Inc. Rose 14% Friday

By Anders Bylund - Oct 23, 2015 at 5:57PM

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

ShoreTel's robust first-quarter results ignited a strong market surge across the IP telephone sector.

Like a modern smartphone, these ShoreTel phones can do much more than basic voice calls. Image: ShoreTel.

What: Shares of ShoreTel (NASDAQ: SHOR) gained as much as 13.9% on Friday, thanks to a fantastic first-quarter report.

So what: In the first quarter of fiscal year 2016, ShoreTel saw sales hold steady year over year, at $90.2 million. Adjusted earnings increased 29%, to $0.09 per diluted share. Your average Wall Street analyst would have settled for earnings of $0.04 per share, though they did nail ShoreTel's top-line revenues exactly.

Looking ahead, the maker of IP-based phone systems and other networked communications solutions expects to deliver roughly $90 million in third-quarter sales. Do take note, however, that the guidance comes with a fairly wide margin of error, ranging from $87 million to $93 million.

Now what: ShoreTel is busy rolling out partner programs, and extending the capabilities of their core communications software. In the second quarter, most of the sales growth came from a suite of cloud-based calling platforms. So-called hosted sales jumped 19% year over year.

Adding some much-needed stability to ShoreTel's quarterly results, the company is also moving many of its customers over to long-term contracts. Today, 51% of ShoreTel's revenues come from these long-term agreements, a 15% improvement from the year-ago period.

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.

"We are now in the third and final phase of our strategic transformation and we continue to operate from a position of strength with momentum and accelerating results," said ShoreTel CEO Don Joos in a prepared statement.

Fellow IP telephony specialist 8x8 (EGHT 10.24%) also reported results on Thursday night, growing faster than ShoreTel, but only meeting and not beating Wall Street's targets. 8X8 shares rose as much as 8.5% on that report, and you almost have to believe that some of that jump came from ShoreTel's good news bleeding over into other IP-based telecom businesses.

Up next, Vonage Holdings (VG) will publish its quarterly results on November 2. With no news of its own today, Vonage shares still rose as much as 3.6% on Friday. In short, investors are treating ShoreTel like an industry bellwether.

Anders Bylund 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

Stocks Mentioned

Vonage Holdings Corp. Stock Quote
Vonage Holdings Corp.
8x8, Inc. Stock Quote
8x8, Inc.
$4.95 (10.24%) $0.46

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

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

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

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.