Why Vocera Communications Inc. Shares Soared

Why Vocera Communications Inc. 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 Vocera Communications Inc. , a company that provides voice-activated communications solutions (think modern day Star Trek within our hospitals) and software to the health care and non-health care industries, shot higher by as much as 21% after reporting its second-quarter earnings results and receiving a subsequent analyst upgrade.

So what: For the quarter, Vocera delivered a 1.7% increase in year-over-year revenue to $25.3 million and a marginal adjusted per-share profit of $0.01. However, these results were a marked improvement over its previous two quarters, and the profit of $0.01 handily trumped an expected EPS loss of $0.03 by Wall Street. Vocera still isn't out of the rough waters, though, with CEO Brent Lang noting that despite solid backlog gains, it's taking longer than expected to turn that backlog into revenue. Shares really got a boost when Wells Fargo upgraded Vocera to "outperform" from "market perform" and set a $17 to $20 target range on the stock.

Now what: Despite today's move higher -- and the really cool technological and practical applications of Vocera's products -- it still has quite a few challenges to work through before I'd give it a clean bill of health. For one, margins are shrinking and product revenue is falling. It's great that service revenue was able to pick up the slack since it generally boasts beefy margins, but that isn't a recipe for ongoing success. In addition, with Vocera being only marginally profitable this quarter and the Street expecting relatively minimal profits next year, Vocera's forward P/E has vaulted over 60! Until I see concrete evidence of product growth and margin stabilization, this is a stock that I'm personally keeping my distance from.

Rising health care costs and discovering ways to control them is one of the reasons why a company like Vocera even exists. Even legendary investor Warren Buffett has called this trend "the tapeworm that's eating at American competitiveness." To learn more about what's happening to the health care system -- and how to potentially profit from this trend -- click here for free, immediate access.

The article Why Vocera Communications Inc. Shares Soared originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of, and recommends, Wells Fargo. 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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