FireEye Inc (NASDAQ:FEYE)‘s shares have slid by over 6% in trading today despite the cybersecurity firm reporting a solid second quarter, due to the fact that the firm reported yesterday that its Chief Financial Officer is leaving the firm. Michael Sheridan, who joined FireEye in 2011, will be leaving the company to join a private firm, FireEye said. This appears to have catalyzed the negative reaction of the market, despite the company’s earnings beating Wall Street’s estimates for its second quarter. FireEye reported a loss of $0.41 per share on revenues of $147 million, better than the $0.48 per share loss and revenues of $143 million that analysts were expecting. FireEye Inc (NASDAQ:FEYE) also said that it expects a loss per share of $0.44 to $0.48 on $225 to $230 million in revenues for the third quarter. Analysts are expecting a net loss of $0.46 per share on revenues of $164.3 million. For the full 2015 fiscal year, the firm expects a net loss per share of $1.70 to $1.80, in-line with the consensus estimates of $1.80 net loss per share, while for revenues it expects between $630 and $645 million, against the consensus of $631.6 million. Total billings are expected to be in the range of $840 to $850 million. While the firm is growing quickly (billings in the second quarter were $178.3 million, up by 57% year-over-year), it’s also spending a lot of cash.
The better-than-expected second quarter is in-line with how hedge funds we follow have been treating the firm’s stock. At the end of the first quarter, a total of 43 of the hedge funds tracked by Insider Monkey were long in this stock, up by six from one quarter earlier. Nonetheless, while our data shows a 26.17% quarter-over-quarter increase in aggregate holdings held by those funds long in the stock, to $573.19 million, this increase is mostly due to the 24.29% spike the stock enjoyed in the first quarter. Hedge funds were correct, however, in staying long on the stock in the first quarter, as it increased by another 24.61% in the second quarter.
An everyday investor does not have the time or the required skill-set to carry out an in-depth analysis of equities and identify companies with the best future prospects like a fund with the knowledge and resources can. However, it is also not a good idea to pay the egregiously high fees that investment firms charge for their stock-picking expertise. Thus, a retail investor is better off to monkey the most popular stock picks among hedge funds by him or herself. But not just any picks, mind you. Our research has shown that a portfolio based on hedge funds’ top stock picks (which are invariably comprised entirely of large-cap companies) falls considerably short of a portfolio based on their best small-cap stock picks. The most popular large-cap stocks among hedge funds underperformed the market by an average of seven basis points per month in our back tests whereas the 15 most popular small-cap stock picks among hedge funds outperformed the market by nearly a percentage point per month over the same period between 1999 and 2012. Since officially launching our small-cap strategy in August 2012 it has performed just as predicted, beating the market by over 66 percentage points and returning over 123%, while hedge funds themselves have collectively underperformed the market (read the details here).
At Insider Monkey, we also follow insiders of companies like FireEye Inc (NASDAQ:FEYE) to see whether these insiders have recently purchased or sold stock in the company. This tells us if company insiders are willing to risk their money on their firm’s stock or whether they are cashing in. There have been no insider purchases of FireEye’s stock this year, but there have been several sales. Director Ronald Codd sold 3,000 shares on July 15, while Chief Strategy Officer Ashar Aziz sold 94,217 shares the same day. On July 14, he sold the same number of shares.
Considering all of these factors, let’s take a glance at the new hedge fund activity surrounding FireEye Inc.
What have hedge funds been doing with FireEye Inc (NASDAQ:FEYE)?
According to hedge fund experts at Insider Monkey, Karthik Sarma‘s SRS Investment Management had the largest position in FireEye Inc (NASDAQ:FEYE), worth close to $127.6 million and made up of 3.25 million shares, corresponding to 5% of its total 13F portfolio. The second-largest stake was held by JAT Capital Management, led by John Thaler, which held a $68.1 million position in 1.74 million shares; the fund had 1.8% of its 13F portfolio invested in the stock. Other peers with similar optimism contained Jim Simons’ Renaissance Technologies, John Burbank’s Passport Capital, and Frank Slattery’s Symmetry Peak Management.
Moreover, some big names jumped into FireEye Inc (NASDAQ:FEYE) headfirst in the first quarter. The aforementioned JAT Capital Management, managed by John Thaler bought its $68.1 million position in FireEye Inc (NASDAQ:FEYE) in the first quarter. Jim Simons’ Renaissance Technologies also bought its 1.17 million shares, a $46.1 million investment in the stock, during the quarter. The other funds with new positions in the stock are the previously mentioned Passport Capital, a\long with Sanford J. Colen’s Apex Capital, and Daniel Benton’s Andor Capital Management.
To recap, the firm is guiding in-line with Wall Street expectations for the third quarter and full fiscal year, posted a better-than-expected second quarter, and experienced bullish sentiment from hedge funds in the first quarter. Adding the perception that the firm’s technology is superior to its rivals in the cybersecurity industry, which is expected to only grow as the world becomes more web-connected, we recommend a long position in FireEye Inc (NASDAQ:FEYE).
Disclosure: None
