Why Ariba's Shares Jumped

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 business commerce solutions provider Ariba (NAS: ARBA) jumped 12% today after the company announced first-quarter earnings.

So what: Revenue rose 21% in the first quarter to $131.5 million, driven by a 59% increase in its network business. Net income rose from breakeven a year ago to $2.3 million, or $0.02 per share. Adjusted earnings per share were $0.25, $0.03 ahead of estimates.

Now what: Stock-based compensation accounted for most of the adjustment, so I think the adjusted earnings number is overstated. Even with the adjusted earnings number, the stock is trading at 35 times 2013 earnings, a steep price in my eyes. I'm going to stay away from this stock partly because of the high price and partly because management is giving away nearly all of its profits in the form of stock to employees.

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At the time thisarticle was published Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.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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