Why ServiceSource Shares Soared

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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 ServiceSource International have flown nearly 19% higher today after the company's second-quarter earnings report came through with a surprise profit after yesterday's close.

So what: Analysts were expecting zero earnings per share for the second quarter, but ServiceSource reported adjusted EPS of $0.02. The company also reported a 13% year-over-year increase in revenue to $67.7 million, above the $64.9 million analyst consensus. The company's GAAP loss was much narrower than it was for the year-ago quarter, with a $0.06 loss per share yesterday against last year's $0.50 loss per share.

The company's full-year guidance was raised on the top line but reduced on the bottom line. ServiceSource now projects between $270 million and $274 million in revenue for 2013, with an adjusted EPS range of $0.05 to $0.07. The new top-line guidance beats the Street's expectations of $269.4 million for the year, but falls short of analyst estimates of $0.08 in EPS for the year.

Now what: It seems like today's buyers are getting a bit ahead of themselves. ServiceSource also projected full-year free cash flow to be between $2 million and $4 million, which at the high end would give the company a forward price-to-free-cash-flow ratio of 242.8. ServiceSource's revenue has only grown about 70% over the past five years. Why does it merit such a nosebleed valuation? I'd tread very lightly around this stock for the time being, especially since it's already doubled over the past year.

Want more news and updates? Add ServiceSource International to your watchlist now.

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The article Why ServiceSource Shares Soared originally appeared on Fool.com.

Fool contributor 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.

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