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Why Ellie Mae Stock Surged 20.6% in January

What happened

Shares of Ellie Mae (NYSE: ELLI) soared more than 20% last month, according to data provided by S&P Global Market Intelligence, as the stock rebounded from its December lows.

So what

Coming into January, Ellie Mae's stock price was in a major downtrend. The company had lost a third of its value following the release of its third-quarter earnings report. Rising mortgage rates and a low supply of homes for sale were dampening demand for mortgages. In turn, Ellie Mae's Q3 revenue fell short of Wall Street's expectations, and the company cut its full-year financial guidance.

However, investors began to take a more optimistic view of Ellie Mae's prospects in early January, following comments from Federal Reserve Chairman Jerome Powell, suggesting that the central bank will take a more patient approach to interest rate increases. Lower rates could help to boost demand for mortgages, and, by extension, Ellie Mae's sales and profits.

More mortgages could mean more profits for Ellie Mae -- and its shareholders. Image source: Getty Images.

Now what

Ellie Mae shares are up another 10% so far in February. Rumors are swirling that the mortgage software leader could be an acquisition target for a private equity firm. It's possible that management will provide an update on the situation during its fourth-quarter earnings conference call on Feb. 14. A transcript of the call will also be available here.

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ellie Mae. The Motley Fool has a disclosure policy.

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