Cray Computer (CRAY) Surges Then Falls After a Strong Second Quarter

Shares of supercomputer maker Cray (CRAY) surged 17% last week after it reported its second quarter earnings, which came in ahead of analyst estimates. Cray reported an adjusted net loss of $0.19 per share, a penny better than the consensus estimate. Revenue rose 0.38% year-on-year to $84.5 million, also topping the $79.8 million that analysts had expected. Daily Chart

Seattle, Washington-based Cray Inc. was founded in 1972 by computer designed Seymour Cray.
The computer had a rocky history that ended in bankruptcy in 1995. The company was eventually brought back in 2000 after Tera Company acquired Cray Research from SGI. Throughout its history, its name has become synonymous with "supercomputer," being featured in comic books, television shows and movies. Cray's outlook for the rest of the year was strong, expecting full year revenue of $520 million, higher than the consensus estimate of $500 million. Cray also expects to be profitable on both GAAP and non-GAAP measures for the year. Margins were a bit weaker, however, during the second quarter. Gross margin declined from 41% to 33%. Margin at its product division came in at 24% while its service division posted 54%, reflecting the importance of its service segment over its hardware one. Cray's operating expenses also climbed to $36.6 million, up from $22.1 million in the prior year quarter. The company's cash and equivalents edged up slightly, from $251 million to $253 million. CEO Peter Ungaro highlighted the strength of Cray's flagship supercomputer business - with major purchases by the European Center for Medium-Range Weather Forecasts and the ARCHER project in the United Kingdom. Cray also recently launched its Cray Cluster Connect offering, an "end-to-end high performance storage solution for any x86 Linux cluster," according to Ungaro. The company also made progress on the analytics front with its YarcData group, which powers the Urika real-time data discovery platform. Based on these strengths, Ungaro expects year-on-year top line growth of 20% for the year. Despite these promises, Cray remains a fairly speculative growth stock. The stock trades at a 38 times forward earnings with a 5-year PEG ratio of 2.76, indicating that the stock is both overvalued and faces sluggish growth ahead based on current analyst estimates. Investors apparently noticed this disconnect between its fundamentals and its share price, and the stock fell more than 4% on August 2 after the previous day's feverish rally. Despite this setback, the stock is still up 138% over the past twelve months, indicating that investors still expect strong top and bottom line growth from this company. Other News About CRAY Cray Posts Modest Loss, Awaits Q4 Revenue Wave Are big gains around the corner for Cray? Why Cray Shares Went Cray Cray Another look at Cray's earnings report. Other Stocks in the News This Biotech's Cystic Fibrosis Treatments Could Catapult It To Profitability Will this niche treatment for CF boost this company's top and bottom line growth? Sleep War Z: A Written History of the Insomniac War Which new insomnia treatment will rise to the top? Copyright 2013 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Aug 5, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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