Why Silicon Graphics Shares Soared

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 Silicon Graphics are up by roughly 8% today after having risen as much as 15% by midday. The fluctuations of today's pop seem to be based on swings between a strong earnings report from the company and a bit of underwhelming forward guidance.

So what: Silicon Graphics' fiscal third quarter clocked in with $232.6 million in revenue and $0.18 in earnings per share, which bested on both counts Wall Street's expectations of $214.7 million in revenue and $0.14 in EPS. However, guidance of $170 million to $185 million in revenue and $0.12 to $0.17 in EPS for the fiscal fourth quarter was a double disappointment -- analysts were looking for $190.7 million on the top line and $0.17 in EPS.

Now what: This might be a rational response, assuming Silicon Graphics remains in positive free cash flow territory. Although the company unprofitable on a GAAP basis, its price-to-free-cash-flow ratio (as of the second quarter) was about 15 after the pop, so there may be a bit of upside left. Silicon Graphics execs say they've "completed the last of the low-margin deals," which is good news -- but it's not quite enough clarity yet, and full-year revenue estimates of approximately $775 million are actually lower than fiscal 2012's result. Add this company to your watchlist and keep digging deeper.

Want more news and updates? Add Silicon Graphics to your watchlist now.

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The article Why Silicon Graphics Shares Soared originally appeared on Fool.com.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.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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