NetApp Inc. (NASDAQ:NTAP) is reportedly getting no merger or acquisition bids, which casts a harsh light on the value of the company and its assets. Earlier this month, George Kurian was appointed as the new CEO of the software company after Tom Georgens stepped down. Soon after, the speculations of a probable sellout of the company started emerging. Last month, NetApp Inc. (NASDAQ:NTAP) reported a disappointing fiscal fourth quarter as it missed estimates. The company’s income plummeted to $134.9 million, or $0.43 per share as compared to $197 million, or $0.59 per share, for the same quarter of the previous year. Revenue meanwhile, fell by 7% to $1.54 billion. NetApp Inc. (NASDAQ:NTAP) is currently worth $9.9 billion in market capitalization, which has seemingly given any potential buyers cause to halt, as a probable buyout price would be around $12 billion plus, given the general premium paid for such deals. The stock is currently trading at $31.67, around a dollar away from its 52-week low of $30.85 after sliding by a little over 2% yesterday on the news. The recent job cuts by Netapp, its inability to get market traction and instability are giving investors and potential buyers cause for concern. On Friday, Summit Research Partners reiterated its ‘Hold’ rating for the company. Cantor Fitzgerald‘s Brian White has also given a ‘Hold’ rating to the software company.
The smart money we track at Insider Monkey was also bearish on NetApp heading into this quarter. 28 of the hedge funds’ portfolios we track at Insider Monkey held long positions in NetApp Inc. (NASDAQ:NTAP) at the end of March, whereas in the previous quarter, 30 hedge funds were bullish on NetApp, which shows a 7% decrease in overall hedge fund sentiment for the company. The total value of hedge funds’ investment in NetApp also declined to $451 million by March 31, whereas it stood at about $478 million three months earlier, which shows a decrease in overall ownership. However, as shares declined by about 15% during the first quarter and the total value of investments fell by just 5%, we can conclude there was actually some buying of shares by funds during the first quarter.
We at Insider Monkey strongly believe in the importance and value of tracking hedge funds’ positions in companies because hedge funds spend large amounts of resources, time, and money to decide their bets on companies. Our experts analyzed the historical stock picks of small-cap companies made by hedge funds and found out that the funds performed far better betting on these companies than they did on large-cap stocks, which is where most of their money is invested and why their performances as a whole have been poor for a number of years. A portfolio of the 15 most popular small-cap stocks among funds outperformed the S&P 500 Total Return Index by 95 basis points per month between 1999 and 2012 in backtesting. The exceptional results of this strategy got even better in forward testing after the strategy went live at the end of August 2012, returning more than 145% and beating the market by more than 85 percentage points since then, and by 4.6 percentage points in the first quarter of this year (see more details about this).
Hedge funds’ activity and insider transactions are two of the most important metrics we use while deciding whether to invest in any company. There are, however, several investors who don’t believe in the value of tracking hedge funds because of the poor return rates of hedge funds in the recent past. However, our research proves that this poor performance doesn’t actually have anything to do with the stock-picking ability of hedge funds, but rather with the composition of their investments.
As mentioned, insider activity also helps in getting useful and deep insight about any company’s standing, particularly in the likelihood any big news will be announced that will affect the stock tremendously one way or the other in the near future. As far as the insider transactions at NetApp Inc. (NASDAQ:NTAP) goes, Matthew Fawcett, SVP, General Counsel & Secretary, sold 4,699 shares of the company on June 26 at $32.75 per share. Nicholas Noviello. EVP Finance & Operations, CFO of the company also sold 4,320 shares of the company at $33.87 per share. There were no insider purchases within the company in 2015.
Let’s have a detailed look at hedge funds’ activity around NetApp.
Details of Hedge Funds’ Activity for NetApp Inc. (NASDAQ:NTAP)
Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, has the largest stake in the company, worth $90 million, which makes it around 0.2% of its 13F portfolio. Joel Greenblatt’s Gotham Asset Management has the second-largest stake in Netapp, worth $59.2 million, which is 0.5% of its 13F portfolio. David Harding‘s Winton Capital Management, Clint Carlson’s Carlson Capital, and Israel Englander‘s Millennium Management are some of the noticeable hedge funds having stakes in the company.
With its stock trading at a near 52-week low, muted hedge fund sentiment, greatly struggling results, and bleak hope of getting M&A bids in the near future, we recommend selling NetApp at this time.
Disclosure: None
