U.S. Markets close in 4 hrs 15 mins

Why Avaya's Stock Jumped 14% Today

Anders Bylund, The Motley Fool

What happened

Shares of Avaya (NYSE: AVYA) moved as much as 14.7% higher on Tuesday, following a solid earnings report. The maker of cloud-based communications tools for businesses both large and small settled in at a 14.2% gain as of 2 p.m. EDT.

So what

Third-quarter sales came in at $717 million, 4% above the year-ago result and slightly ahead of Wall Street's consensus estimates. On the bottom line, a non-cash goodwill writedown led to a net loss of $5.70 per share. Excluding that charge and a plethora of other line items that don't relate directly to the company's day-to-day operations, Avaya held its adjusted EBITDA profits steady at $167 million. The full-year outlook for adjusted EBITDA and earnings was left unchanged.

A businessman standing on a wire strung high above a bustling cityscape.

Image source: Getty Images.

Now what

Moreover, management noted that the ongoing review of strategic alternatives should conclude within the next 30 days.

"At this time, we are in advanced discussions with multiple parties on a range of strategic transactions to maximize shareholder value," CEO Jim Chirico said in the earnings call.

Even after today's sudden jump, Avaya's shares have still lost half their value over the last 52 weeks. The stock is trading at just 3.5 times forward earnings estimates and 0.5 times the company's total book value. These are valuation ratios normally reserved for companies on the brink of bankruptcy. Avaya's shares should be treated more like gambling chips than serious investments until the review of strategic alternatives comes to an end.


Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com