Why Ellie Mae Shares Popped

Why Ellie Mae Shares Popped

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 Ellie Mae were up as much as 15% today after the mortgage-software provider posted strong third-quarter guidance in its earnings report.

So what: The software-maker said revenue increased 45% in the quarter, up to $34.3 million, in line with estimates, while adjusted earnings per share came in at $0.29, also matching expectations. CEO Sig Anderman noted the growth in "continued demand for SaaS solutions" as the company saw strong increases in the number Encompass360 customers, its end-to-end mortgage software. For the current quarter, management expects revenue of $34-$34.5 million, ahead of estimates of $33.75 million, and sees adjusted EPS of $0.29-$0.30, better than the $0.28 the experts forecast.

Now what: Despite the strong quarter and guidance, there are some concerns here. Revenue grew much faster than the bottom line as the cost of revenues and general and administrative expenses both grew by over 60% in the quarter. Shareholders should hope to see those cost increases in line with sales or lower in future quarters. Also, Ellie Mae pointed out that 50% of its revenue is sensitive to changes in mortgage volumes, and it expects a 13% decrease in new home loans this year. With interest rates on the rise, the housing market could cool even more. That could be bad news for Ellie Mae.

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The article Why Ellie Mae Shares Popped originally appeared on Fool.com.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Ellie Mae. The Motley Fool owns shares of Ellie Mae. 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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Originally published