Best Stocks of 2016: Ellie Mae Inc (ELLI) Stock Leads the Charge

The numbers look good for ELLI stock to maintain its lead

By Jason Moser, Senior Analyst, Motley Fool Million Dollar Portfolio

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Editor’s note: This column is part of our Best Stocks for 2016 contest. Jason Moser’s pick for the contest is Ellie Mae Inc (NYSE:ELLI).

Best Stocks of 2016: Ellie Mae Inc (ELLI) Stock Leads the ChargeEllie Mae Inc (NYSE:ELLI) continues to forge ahead with a great 2016. On July 28, the company reported second-quarter results and below are a few highlights from the quarter:

  • Sales grew 37%, to $90.1 million, compared with $65.9 million a year ago.
  • 13,000 SaaS Encompass seats were booked.
  • Non-GAAP EPS was 64 cents, compared with 48 cents a year ago.

More Users, More Money for ELLI Stock

The 13,000 new seats booked in the second quarter brings the total number of Encompass users to more than 153,000, which spurred growth in contract revenue of 39%. The continued resilience of the U.S. housing market also helped push variable revenue (revenue that is tied to completed transactions) up 35% to $41 million.

Management now projects total U.S. origination volume for the year to clock in at $1.7 to $1.8 trillion which would mark 10% growth over the $1.6 trillion last year. This expected volume has kept the stock in the market’s good graces this year, with shares now trading at a lofty 70 times free cash flow. While it’s hard to call the stock a steal today, that lofty multiple no doubt is reflective of not only continued strong performance but also the company’s overall competitive position in the market. This is a high-quality business with a strong competitive position, and the market knows it.

One More Thing

Management also recently conducted a follow-up offering of common stock to raise cash for general corporate purposes. The company made an additional 2,750,000 shares priced at $90 per share available on Aug. 9, resulting in about $247 million in proceeds.

So far, management has run a tight ship and shareholders continue to do well by Ellie Mae, so I have no problem with the company taking advantage of its rich stock price to raise additional capital.

ELLI stock has been on a tear so far this year and there’s no reason to believe it won’t continue. The business has an excellent competitive advantage in a large and important market, and it’s a great name to keep on a watch list of companies to buy when the price is right.

Ellie Mae is slated to announce third-quarter earnings on Oct. 27 after the market closes.

Jason Moser is a senior analyst for The Motley Fool’s flagship real-money portfolio service, Million Dollar Portfolio. He’s also a core member of the daily MarketFoolery podcast and the weekly show, Motley Fool Money. At the time of this writing, both Jason and the Million Dollar Portfolio were long ELLI stock. He’s been known to fire off a tweet or ten, and his Twitter handle @TMFJMo is where the magic happens.

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