Hollysys Shares Popped: What You Need to Know
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 Chinese automation and control expert Hollysys (NAS: HOLI) were on an upward autopilot today, gaining as much as 14% in intraday trading before closing with a 13% gain.
So what: Before the market opened, Hollysys announced that it had won a contract from MTR to provide high-speed rail signaling systems for the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link. The project is expected to be completed by 2015, and the contract is valued at roughly $63 million. To put the latter in perspective, for all of 2011, the company reported total revenue of $295 million and profit of $49 million.
Now what: Though the contract will stretch over the next few years, there's still good reason for investors to get excited about a contract of this size. In addition to the direct business that this contract gives Hollysys, it also builds the company's credibility and -- assuming it does good work on this project -- could help it win future contracts. However, some tempering of excitement may be in order, since the revenue hasn't been earned yet (remember what Mom said about counting chickens!), nor do we have a good sense of how profitable this contract will be.
All told, though, it looks like a good day to be a Hollysys shareholder.
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