Why Sotheby's Shares Were Bid 15% Higher Today

What happened

Shares of auction house Sotheby's (NYSE: BID) jumped as much as 14.7% in trading Monday after the company released fourth-quarter results. And shares kept steaming, trading 13.6% higher as of 12:30 p.m. EST.

So what

Revenue for the quarter fell 8.1% to $308.7 million, but the company did swing from a loss of $11.2 million to a profit of $65.5 million, or $1.20 per share. Analysts were only expecting $277.3 million in revenue, and earnings of $1.35 per share on an adjusted basis came in well ahead of Wall Street's $1.17 estimate.

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The focus at Sotheby's recently has been on lowering fixed costs to increase profitability in a down art market. On that front there was a lot of progress in the second half of 2016, which can be seen in the increased earnings despite a drop in revenue. Management is also hopeful that some large auctions set for 2017 will bring stronger results and lead to renewed interest in the art market; we may get a preview of that interest later this week at a high-profile auction.

Now what

After pressure from activist investors, Sotheby's has done a good job lowering costs and operating risk. And in a down market, that's leading to solid financial results. If the art market improves later this year, we will see the earnings leverage that will be built into the business given the lower costs. Shares still aren't cheap at 36 times trailing earnings, but if revenue grows in 2017, the stock could turn out to be a good value for long-term investors.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Sotheby's. The Motley Fool has a disclosure policy.