Why Are BlackLine (BL) Shares Soaring Today

Adam Hejl /
2024/03/04 3:49 pm EST

What Happened:

Shares of accounting automation software maker Blackline (NASDAQ:BL) jumped 10.1% in the afternoon session after the S&P Dow Jones Indices announced that the company would join the S&P SmallCap 600 index before the start of trading on Monday, March 18, 2024. The S&P 600 index tracks small-cap stocks with a market cap of $850 million to $3.6 billion. Being included in the index means that it will likely be held by many mutual funds and ETFs, which could potentially drive up demand for the stock.

We note that while buying of the stock could increase, this development does not change the fundamentals of the company. Revenue growth, expense efficiency, and capital intensity of the business, for instance, are not impacted by index inclusion or exclusion, so this is more of a technical tailwind for the stock.

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What is the market telling us:

BlackLine's shares are somewhat volatile and over the last year have had 11 moves greater than 5%. But moves this big are very rare even for BlackLine and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 10 months ago, when the stock gained 8.4% on the news that the company reported first-quarter results that beat analysts' revenue estimates slightly. Free cash flow and earnings per share (EPS) beat by larger magnitudes. However, customer growth slowed and gross margin declined slightly. Despite these, management provided reassuring guidance with revenue projections for the next quarter and full year roughly inline with Consensus. More positively, EPS guidance was well above expectations. This was a mixed but overall strong quarter.

BlackLine is up 10.7% since the beginning of the year, and at $65.27 per share it is trading close to its 52-week high of $68.05 from March 2023. Investors who bought $1,000 worth of BlackLine's shares 5 years ago would now be looking at an investment worth $1,310.

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