Barracuda Networks Inc (NYSE:CUDA) reported better-than-consensus results for the first quarter of its 2016 fiscal year. In the fiscal quarter that ended May 31, the technology security and storage firm reported adjusted earnings of $5.1 million, or $0.09 per diluted share, up 39% from $3.6 million, or $0.07 per share, in the year-ago quarter. The firm also reported revenues of $78.0 million, up 18% from $66.2 million in the first quarter of fiscal year 2015. The adjusted earnings excluded $6.5 million in stock-based compensation expenses, $1.1 million in acquisition and other non-recurring charges, $0.6 million in amortization of intangibles, $0.5 million in other expenses, net and $0.2 million in income tax provisions of non-GAAP exclusions. Wall Street was expecting earnings of $0.08 per share on revenues of $77.37 million. Year-to-date, the stock has grown 9.06%, while in the last 12 months, the stock has jumped by 15.16%. Nonetheless, shares were hammered in pre-market trading following the earnings report and are down by over 19% in morning trading. The negative market reaction appears to be based on the fact that Barracuda’s gross billings growth slowed to 7.6% from 17% quarter-over-quarter, although some of the decline was as a result of negative currency fluctuations, with the growth being 12% on a constant currency basis.
The beat posted by the firm is not at odds with hedge fund sentiment in the first quarter of the year. At the end of the first quarter of 2015, a total of seven of the hedge funds tracked by Insider Monkey were long in this stock, unchanged from the previous quarter. It’s important to point out, nonetheless, that those who were long in the stock bought more shares, as the cumulative value of holdings jumped by 21.93% to $10.12 million by March’s end from $8.3 million at the end of December. This increase is notable because the stock only grew by 7.34% between January 2 to March 31.
Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research, we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand, the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith in large-cap stocks. In forward tests since August 2012, these top small-cap stocks beat the market by an impressive 80 percentage points, returning over 135% (read the details here). Hence, a retail investor needs to isolate himself from the herd and take advantage of the best growth opportunities in the market by concentrating on small-cap stocks.
Insider Monkey also couples analyzing hedge fund behavior in companies like Barracuda Networks Inc (NYSE:CUDA) with insider sentiment to judge whether stocks are good to buy at the moment. While, Barracuda Network’s insiders did not make any purchases of shares this year, there were several sales, the most recent of which was large shareholder Dean Drako selling 25,000 shares at the start of July.
With all of this in mind, let’s check out the key action regarding Barracuda Networks Inc on the next page.
How are hedge funds trading Barracuda Networks Inc (NYSE:CUDA)?
Of the funds tracked by Insider Monkey, Richard Driehaus‘ Driehaus Capital had the most valuable position in Barracuda Networks Inc (NYSE:CUDA), consisting of 122,099 shares worth close to $4.7 million, corresponding to 0.2% of its total 13F portfolio. The second-most bullish hedge fund manager was Jim Simons of Renaissance Technologies with a $1.4 million position of 36,700 shares; less than 0.1% of its 13F portfolio was allocated to the company however. Remaining hedgies with similar optimism comprise Matthew Hulsizer’s PEAK6 Capital Management, Cliff Asness’ AQR Capital Management, and Ken Griffin’s Citadel Investment Group.
Intriguingly, Carl Wiese‘s Grow Partners sold off the largest position of the “upper crust” of funds followed by Insider Monkey, 50,000 shares worth close to $1.8 million. David E. Shaw’s fund, D.E. Shaw & Co., L.P., also said goodbye to its 30,824 shares, about $1.1 million worth.
The bullish sentiment from hedge funds we track along with the company’s positive results for the first quarter of its 2016 fiscal year makes Barracuda Networks Inc (NYSE:CUDA) an appealing stock to invest in at the moment on the decline.
Disclosure: None
