Why ShoreTel Shares Surged

Why ShoreTel Shares Surged

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 ShoreTel have ended the day with a 7% gain after starting the morning with a 14% pop. Investors have moderated their enthusiasm over ShoreTel's double beat on yesterday's fiscal fourth-quarter earnings report, as they digest the company's forward guidance.

So what: ShoreTel's revenue came in at $85.6 million for the fourth quarter, 9% higher year over year, and also a bit ahead of the $83 million Wall Street consensus. The company's earnings of $0.06 per share smashed through the Street's expectation of just $0.02 in EPS. Looking forward, the company's first-quarter guidance now puts revenue in the $77 million to $83 million range, which hits Wall Street's $79.8 million fairly near the midpoint. ShoreTel CFO Mike Healy did note that the company's first-quarter gross margins will be about 61% to 62%, and with operating expenses in the $49 million to $52 million range, it looks as though the company may report a slight net loss for the quarter.

Now what: Analysts were expecting a $0.01 loss per share for the upcoming quarter, and there's still some room for ShoreTel to grow past that weak spot. However, the company's year-ago first-quarter revenue was about 7% lower than the midpoint of its present guidance. That's a slight dip from this quarter's growth rate, but it's not falling into worrisome territory. After today's pop, it might be best to do a deeper investigation before you decide to follow the crowd into this small-cap stock.

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The article Why ShoreTel Shares Surged originally appeared on Fool.com.

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