One of the larger companies that have gained ground on Thursday is Palo Alto Networks Inc (NYSE:PANW), whose stock has advanced by almost 8% on a trading volume of 2.94 million shares, versus average of 1.65 million shares. The reason behind the appreciation are very strong financial results for the fourth quarter of fiscal 2015, ended July 31. The company delivered a revenue growth of 59% on the year to $283.9 million and non-GAAP net income of $0.28 per share, versus $0.11 posted a year earlier. Analysts expected earnings of $0.25 per share and revenue of $270 million, and by beating them, Palo Alto had one of the strongest quarters in the last several years.
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For the full year, Palo Alto Networks Inc (NYSE:PANW)’s revenue grew by 55% to $928.1 million and EPS surged to $0.86 from $0.40. The improvement of the results comes as governments and companies increased their spending on cybersecurity and the news had a positive impact across the whole industry. In this way, Fortinet Inc (NASDAQ:FTNT) appreciated by almost 3% today, while Juniper Networks, Inc. (NYSE:JNPR) gained 1.50%.
Aside from the fact that the overall market appreciated Palo Alto Networks Inc (NYSE:PANW)’s results, it’s important to point out that the company also has many fans among the smart money investors. The company is rather popular among the hedge fund we track, as we shall see later. But before we get to that, we need to explain the reasoning behind our interest in the hedge fund sentiment regarding a stock. Generally, most retail investors don’t pay attention to hedge funds’ moves, because of their lagging returns in the last couple of years. However, this performance is mostly affected by the hedge funds’ short positions in the bull market. On the other hand, some of their individual picks can generate returns significantly above those of the market. This is the case for hedge funds’ small-cap ideas, around which we have built our small-cap strategy. This strategy involves imitating 15 most popular small-cap stocks among some 730 funds and it has returned some 118% in the last three years alone, beating the market by over 60 percentage points (read more details here).
When it comes to Palo Alto Networks Inc (NYSE:PANW), our data show that smart money like the company more than other cybersecurity stocks. At the end of June, 45 funds held $735.49 million worth of stock, representing some 5% of the company. However, as the stock gained 20% between April and June, the number of investors with long positions declined by two, and the total value of the stakes slid from $953.21 million at the end of June, which can be explained by some investors’ desires to book profits. By comparison, Fortinet also witnessed a small decline in popularity as 26 funds disclosed stakes worth $322.14 million in aggregate as of the end of the second quarter.
A closer look at hedge funds’ 13F filings for the second quarter, show that Palo Alto Networks Inc (NYSE:PANW)’s five largest shareholders in our database reduced their stakes during the quarter. The largest stake was held by Donald Chiboucis’ Columbus Circle Investors, which owned 696,800 shares at the end of June, down by 21% on the quarter. Two other investors that cut their exposure even more are Christopher Lord’s Criterion Capital and John Burbank‘s Passport Capital, which reduced their holdings by 700% and 35% to 306,300 shares and 260,000 shares respectively.
In this way, as Palo Alto strengthens its financial situation and shows an impressive improvement in earnings, it represents a hot stock with a lot of potential. Hedge funds have been bullish on the whole IT security industry for a while now; the number of funds holding shares of the company jumped by 12 during the first quarter of 2015, so you should probably follow suit if you haven’t done so yet.
Disclosure: none
