Why Gigamon Inc's Shares Went Wild Today

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 Gigamon closed Friday up about 26% following the release of the company's first-quarter earnings after Thursday's closing bell.

So what: Gigamon reported$46.9 million in revenue and adjusted earnings of $0.13 per share for the quarter. Both results far exceeded Gigamon's year-ago quarterly results, which produced $31.8 million in revenue and a loss of $0.07 per share. Wall Street's analysts had expectedthe company to post earnings of just $0.04 per share on $42.2 million in revenue. Gigamon issued second-quarter guidance during its earnings callthat anticipates revenue in the range of $48 million to $51 million, with adjusted earnings ranging from $0.11 to $0.15 per share. Both ranges come in above Wall Street's consensus targetsof $49.3 million in revenue and $0.11 in EPS.

Now what: Today's pop caps off a stunning six-month gain of 120% that followed the stock's crushing 32% loss last summer following underwhelmingguidance, and it looks like the company may have learned from that mistake. Its second-quarter revenue range is 42% higher than the year-ago quarter at its midpoint, but only 6% above the first-quarter's strong results. The company's EPS guidance is also a marked improvement over 2014's second-quarter adjustedloss of $0.04 per share, but is merely the same as the first quarter's result at its midpoint.

The company is hardly cheap -- it continues to report steep GAAP losses and Wall Street's full-year consensus for $0.40 in adjusted EPS translates to a heady adjusted forward P/E of 73.8. Investors don't seem to care so long as Gigamon keeps posting big growth, but nearly every high-flying stock eventually has to face financial reality. Can Gigamon put together another six-month double? It's unlikely, but investors will need to weigh the possibility of a slowdown against the optimism currently baked into share prices before considering yesterday's report a buy sign.

The article Why Gigamon Inc's Shares Went Wild Today originally appeared on Fool.com.

Alex Planes has no position in any stocks mentioned. 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.