Ellie Mae Inc: Housing Recovery Could Be Big Boost for ELLI Stock

Does ELLI Stock Deserve Your AttentionDoes ELLI Stock Deserve Your Attention?

Ellie Mae Inc (NYSE:ELLI) stock may not be a household name for many. However, the Pleasanton, California-based company’s position as a leading provider of on-demand software solutions and services for the residential mortgage industry is helping Ellie Mae stock to become one of the most intriguing under-the-radar companies.

It isn’t likely that Ellie Mae stock will stay under-the-radar for too much longer, though, especially when its second-quarter results produced record revenue of $90.1 million, up 37% from $65.9 million in Q2 2015.

Ellie Mae reported second-quarter net income of $10.6 million, or $0.34 per diluted share, which is a substantial ascent from the $7.6 million net income, or $0.25 per diluted share, during the second quarter of 2015. On a non-GAAP basis, Ellie Mae’s second-quarter adjusted net income was $20.1 million, or $0.64 per diluted share, up from $14.9 million, or $0.48 per diluted share, one year earlier. The adjusted EBITDA for the second quarter was $30.9 million, up from $22.6 million in the second quarter of 2015. The company is predicting $338 million to $341 million in revenue for 2016, up from the previously provided range of $325 million to $329 million. The company is expecting net income in the range of $27.5 million to $28.5 million, up from the previously provided range of $23.5 million to $25.5 million.

Ellie Mae’s stock reached $98.24 on a recent bid, with shareholders receiving a 7.3% return on investment.

Jonathan Corr, president and CEO of Ellie Mae, is optimistic that more peaks will be reached in the near future: “Second quarter results exceeded expectations across revenue, bookings and profitability. Our results are reflective of the mortgage industry’s transformation toward technology-driven solutions and our expanded market leadership. Our business also benefits from an improving housing and origination market. With the strong first half complete, we are raising our 2016 full year guidance.” (Source: “Ellie Mae Reports Second Quarter 2016 Results,” BusinessWire, July 28, 2016.)

Ellie Mae’s Housing Market Synergy

What’s driving ELLI stock upward?

For starters, the U.S. housing market is showing extraordinary vibrancy despite low inventory levels. The national median home price broke a record last month when it reached $231,000—and June marked the 52nd consecutive month when median home prices increased on a year-over-year basis. (Source: “Median Home Price Reaches New Peak,” National Mortgage Professional, July 28, 2016.)

Home sales continue on a steady pace: this week, the S&P CoreLogic Case-Shiller Indices reported a five percent annual gain in May on its U.S. National Home Price NSA Index. (Source: “A Very Active Tuesday in the Housing Market,” National Mortgage Professional, July 26, 2016.) As the housing market and the mortgage banking industry continue to strengthen, the market for Ellie Mae’s proprietary “Encompass” loan origination technology will remain viable.

Ellie Mae is also taking advantage of vendor consolidation trends in the mortgage industry space, most recently with its July 26 announcement of an enhanced integration with First American Title Insurance Company. This will enable additional features—including rate and fee quoting, title and settlement ordering, and collaboration on closing disclosure forms—directly from Ellie Mae’s Encompass platform, which was upgraded last week.

Investor Interest in ELLI Stock Expands

As one of the relatively few publicly traded technology companies focused exclusively on the mortgage space, ELLI stock has been a profitable investment since it held an initial public offering (IPO) in April 2011. After going public, the company’s annual revenue increased from $55.5 million in 2011 to $253.9 million in 2015, a 357% increase.

Ellie Mae’s earning potential has not gone unnoticed in the investment community. Summit Creek Advisors acquired 58,208 shares in Ellie Mae Inc during the most recent quarter’s end. This brings Summit Creek Advisors’ ELLI stock holdings to 182,974 shares, or roughly 2.91% of its portfolio. The investment management firm Creative Planning acquired 5,247 shares in the latest quarter and now holds a total of 5,505 shares of Ellie Mae valued at $525,287. Finally, BNP Paribas Arbitrage SA added the company’s stock to its portfolio with the purchase of 1,147 company shares during the most recent quarter, which is valued at $108,472. (Source: “Summit Creek Advisors buys $17,913,155 stake in Ellie Mae Inc (ELLI),” Trade Calls, July 26, 2016.)

The Takeaway Regarding Ellie Mae Stock

With the housing market continuing to grow stronger, the company’s core business will continue to reap revenue rewards and Ellie Mae’s stock is showing no signs of losing its vibrancy.