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Fusion-io: The Street Ignores the Good

Stocks in this article: FIO FB APPL EMC NTAP IBM AAPL CSCO

NEW YORK ( TheStreet) -- Since bottoming out at $10.38 per share on Aug. 21, shares of Fusion-io (FIO), which have been under significant pressure for most of the year, have soared by as much as 50%. Due to the volatile nature of this company over the past month, the stock has given back more than 10% of those gains.

In the ever-changing realm of Big Data, where titans like EMC (EMC) and NetApp (NTAP) have grown to dominate corporate enterprises, Fusion-io is still a relatively unknown name. However, it is starting to disrupt the way enterprises think about storage and analytics. To that end, while there's no debate that Fusion-io has extraordinary growth potential, management has chronically failed to execute on that promise. I don't believe it's time to give up on this company just yet, even though the Street is expecting very little.

Despite what has been considered a brutal performance by many investors, Fusion-io has posted a 21% sequential jump in revenue for its recent quarter. While it's true that there was a year-over-year fall 1% in revenue, the results form EMC and NetApp didn't suggest that corporate enterprises were ready to loosen their purse strings. Plus, it's worth noting here that the company continues to benefit greatly from its relationship with Facebook (FB), which now accounts for more than one-third of Fusion-io's sales.

The Street still seems disappointed with the company's profit margins. That, too, is something that I can't quite understand. I will grant that Fusion-io's profitability hasn't been extraordinary, but it seems pointless to act as if profits suddenly matter to a company that is less than two years old and is still experiencing some growth spurts.

In that regard, the fact that sales and marketing expenses climbed more than 50% should not have come as a surprise. Even so, the company still managed to beat its gross margin expectations by roughly 1%. The only issue with this quarter was with the company's guidance, which was 31% below expectations. Management guided revenue for $85 million versus Street estimates of $124 million.

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