NEW YORK (TheStreet) -- Shares of SolarWinds(SWI) - Get Report were gaining 14.5% to $47.97 with heavy trading volume on Friday after the enterprise information technology management software maker announced it is exploring its strategic alternatives.
SolarWinds said the review comes in response to an unsolicited expression of interest from a third party. The review may result in SolarWinds selling itself.
The software company retained JPMorgan as its financial advisor, and DLA Piper LLP as its legal advisor for the review.
"Consistent with its duties, our board of directors has determined that it is prudent to undertake a review to see which alternative or alternatives, including our standalone plan, are the best way to maximize shareholder value," CEO Kevin Thompson said in a statement. "As the board conducts its review, we remain focused on strong revenue growth and cash flow and excited about continuing to deliver our world class products to help IT professionals manage all things IT."
About 5.8 million shares of SolarWinds were traded by 3:11 p.m. Friday, well above the company's average trading volume of about 1.2 million shares a day.
TheStreet Ratings team rates SOLARWINDS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
We rate SOLARWINDS INC (SWI) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and compelling growth in net income. However, as a counter to these strengths, we find that the company's return on equity has been disappointing.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 9.9%. Since the same quarter one year prior, revenues rose by 17.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
- SWI has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.49, which illustrates the ability to avoid short-term cash problems.
- The gross profit margin for SOLARWINDS INC is currently very high, coming in at 97.31%. Regardless of SWI's high profit margin, it has managed to decrease from the same period last year.
- After a year of stock price fluctuations, the net result is that SWI's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Software industry and the overall market on the basis of return on equity, SOLARWINDS INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- You can view the full analysis from the report here: SWI