How Shares of Vonage Holdings Corp. Rose 30% in July

Image source: Vonage.

What: Vonage Holdings started July in a solid but unspectacular fashion. Vonage's shares had climbed roughly 6% higher when the closing bell on July 30 rolled around, and with it, the company's second-quarter earnings report. The next day, just before the monthly goal line, the stock shot more than 20% higher. According to data from S&P Capital IQ, Vonage gained 31.1% in July as a whole, with almost the entire surge arriving on the back of that earnings report.

So what: For the second quarter, analysts had expected Vonage to deliver earnings of roughly $0.08 per share and sales near $219 million. Vonage reported adjusted earnings of $0.09 per diluted share and $222 million in revenue, edging out both of the Street targets. From a historical perspective, sales increased 1.4% year over year and earnings per share surged 29% higher.

Now what: The vendor and operator of Internet-based communications services is getting over its perennial love affair with consumers and diving deeper into business-class products. Vonage left some easy consumer revenue on the table in the second quarter as a result of decreased marketing budgets in that division, but as you can see, the gains on the business side more than made up for it.

Vonage's profit margins are surging as a result of this newfound focus on corporate clients, and free cash flows also followed suit with a 64% year-over-year increase.

So the new strategy is proving its mettle, and Investors are taking note. Vonage shares have soared 64% higher so far in 2015. Granted, the stock also trades at a lofty 48 times trailing earnings at these levels, but is that really a preposterous valuation when Vonage can lean on a successful strategy shift that produces swiftly rising margins and profits?

That's for each investor to decide, of course, but in my view, Vonage looks pretty attractive right now. Keep this up for a few more quarters, and the corporate focus should start producing higher sales on top of those widening profit margins.

Vonage has beaten earnings estimates without fail in each of the last seven reported quarters. That consistency bodes well for high-quality execution in the quarters ahead. Not making any promises, because there are no sure things in the real world. But all the signs on the table today are pointing to further progress.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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