Why Pegasystems Stock Jumped Today

Shares of workflow automation company Pegasystems (NASDAQ: PEGA) soared today after the company reported second-quarter earnings and revenue that easily topped Wall Street's expectations.

Pegasystems' non-GAAP (adjusted) earnings per share of $0.52 was ahead of analysts' consensus estimate of $0.29. And the company's second-quarter sales increased 18% to $351.2 million, outpacing Wall Street's average estimate of $324.7 million.

Pegasystems' stock was up by 14.7% as of 1:41 p.m. ET.

Contract value and free cash flow on the rise

Investors tend to celebrate any time a company beats revenue and earnings estimates. But there was more to this quarter than just those impressive results.

Pegasystems' annual contract value was up 12% from the year-ago quarter to $1.3 billion and rose 13% on a constant currency basis. Additionally, the company's free cash flow (FCF) jumped 119% to $218 million in the second quarter.

Investors were likely happy to see such a significant increase in Pegasystems' FCF, which is an indicator of a company's financial health.

CEO Alan Trefler said in prepared remarks that the company's artificial intelligence offerings are a differentiator for the company and are helping to drive profitability and contract value.

A great quarter among some volatility

Pegasystems shareholders know that the company's stock has been volatile over the past couple of years. But the company's second-quarter results show it is on the right path with its free cash flow and annual contract value.

With Pegasystems' current price-to-sales ratio of 3.6, its stock isn't exactly cheap. Which means investors will need to see continual growth from the company to justify its price.

Long-term investors should take the second-quarter results for what they are -- a snapshot of the company's current financial health -- and closely watch Pegasystems' future quarterly reports for more proof that it can continue to put up impressive results.

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool recommends Pegasystems. The Motley Fool has a disclosure policy .