Allot Communications Ltd. (NASDAQ:ALLT) issued an update to its earnings guidance for the second quarter earlier today. The company reported solid financial results for the first quarter, posting $0.03 in earnings per share, beating the consensus EPS expectations by $0.02. But the broadband solutions provider missed on its revenues as it reported revenue of $29.5 million for the quarter, $0.29 million short of expectations. Earlier today, Allot Communications Ltd. (NASDAQ:ALLT) updated its guidance for its second quarter results, for the period that ended on June 30. The company is forecasting a net loss in earnings per share for the period, whereas the Thomson Reuters consensus EPS for the quarter stands at $0.07. Allot Communications Ltd. (NASDAQ:ALLT) also issued revenue guidance for the quarter of $21 – $22 million, well below the consensus estimate of $30.43 million. This huge reverse step from the company did not go over well with the investors; Allot Communications Ltd. (NASDAQ:ALLT)’s stock dropped around 11% in pre-market trading and is currently trading at around 15% lower than where it closed on Thursday. In this a good opportunity to get in on the stock, or are the revisions too ghastly to make it a viable purchase even at the reduced price? Let’s take a look at a couple of important metrics to try and determine its potential, those being the activity in the stock among the smart money, as well as insiders of the company.
At the end of March, there were 12 hedge funds with $45.19 million investment in Allot Communications Ltd. (NASDAQ:ALLT). There were 13 hedge funds with around $61.67 million invested at the end of 2014. As Allot Communications Ltd. (NASDAQ:ALLT)’s stock lost just 3% of its value in the first three months, we can see that there was a large flight of capital from the stock among the best investors in the world. They have certainly been right to flee the stock, as it had dropped by over 31% since the end of the first quarter and was down heavily since then even before today.
Most investors don’t understand hedge funds and indicators that are based on hedge fund and insider activity. They ignore hedge funds because of their recent poor performance in the long-running bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns enjoyed (or not) by investors. We uncovered through extensive research that hedge funds’ long positions in small-cap stocks actually greatly outperformed the market from 1999 to 2012, and built a system around this. The 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 80 percentage points since the end of August 2012 when this system went live, returning a cumulative 135% vs. less than 55% for the S&P 500 Index (read the details).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors that often lead to greater returns. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. There were no insider purchases or sales of Allot Communications shares in the last six months.
Keeping this in mind, let’s check out the latest hedge fund activity in Allot Communications Ltd. (NASDAQ:ALLT).
What have hedge funds been doing with Allot Communications Ltd. (NASDAQ:ALLT)?
When looking at the hedgies followed by Insider Monkey, Mark N. Diker’s Diker Management had the most valuable position in Allot Communications Ltd. (NASDAQ:ALLT), with ownership of 1.5 million shares worth close to $12.9 million at the end of the first trimester, amounting to 2.3% of its total 13F portfolio. The second-largest stake was held by Anand Parekh of Alyeska Investment Group, with around 1.3 million shares valued at $11.5 million; the fund had 0.2% of its 13F portfolio invested in the stock. Other peers with similar optimism comprise Brian Ashford-Russell and Tim Woolley’s Polar Capital, Peter A. Wright’s P.A.W. Capital Partners, and Christopher Zepf and Brian Thonn’s Kingdom Ridge Capital.
Because Allot Communications Ltd. (NASDAQ:ALLT) has faced bearish sentiment from hedge fund managers, it’s easy to see that there exists a select few hedge fund managers who decided to sell off their entire stake in the stock during the first three months of the year. Intriguingly, Eric Bannasch‘s Cadian Capital cut the largest investment in the stock during the first quarter by selling around 1.4 million shares of the company. Even the aforementioned hedge fund manager, Mark N. Diker, who holds the largest long position in the stock at the end of March, had his position of call options closed.
Hedge funds were rightfully bearish on Allot Communications Ltd. (NASDAQ:ALLT) as the company has struggled mightily since the end of the first quarter. With a severe cut to the company’s guidance for the second quarter, we don’t see the bottom being reached for this stock yet and don’t recommend buying it at the moment.
Disclosure: None
