TiVo Inc. (NASDAQ:TIVO) is currently down 13% year to date, stemming largely from a roughly 20% decline in early June after the company settled its intellectual property lawsuits against companies such as Google Inc (NASDAQ:GOOG), Cisco, and Time Warner Cable Inc (NYSE:TWC) on terms which disappointed the market. With TiVo Inc. (NASDAQ:TIVO)’s intellectual property making up a good deal of the valuation, the company’s failure to better defend/monetize its assets was seen as quite negative by many investors. Adjusted earnings per share are basically zero on a trailing basis, and Wall Street analyst forecasts are for a loss of 26 cents per share this year and profits of only 5 cents per share in the fiscal year ending in January 2014. Even cash flow from operations was negative in the first quarter of its current fiscal year (the quarter ending in April).
TiVo Inc. (NASDAQ:TIVO)’s CEO, Thomas Rogers, apparently believes that the market has overreacted to the news. On July 1st, according to a Form 4 filed with the SEC, he directly purchased 10,000 shares of stock at an average price of $11.14 per share. This is his first pure purchase of TiVo shares since May 2011. Studies generally show a small outperformance effect for stocks bought by insiders (read our analysis of studies on insider trading) and we think that in theory it’s quite notable to see the CEO buying the stock. Rogers already receives his income from TiVo Inc. (NASDAQ:TIVO), and so buying stock increases his company-specific risk further rather than diversifying his potential income streams; in theory, this suggests high confidence in the stock.
SAC Capital Advisors, managed by billionaire Steve Cohen, reported a position of 6.7 million shares in TiVo Inc. (NASDAQ:TIVO) as of the end of March (find Cohen’s favorite stocks); we track quarterly 13F filings from hundreds of hedge funds as part of our work developing investment strategies. We have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year.
Peers for TiVo Inc. (NASDAQ:TIVO) include Sony Corporation (ADR) (NYSE:SNE), a provider of many TV peripherals, and Netflix, Inc. (NASDAQ:NFLX), which serves as a source of TV media for many consumers. Billionaire activist Dan Loeb has set his sights on a partial spinout of Sony Corporation (ADR) (NYSE:SNE)’s entertainment division, which would be a landmark move for activist investing in Japan; analysts actually like the company as it is, projecting enough improvements in earnings that the five-year PEG ratio is 0.9. The stock is up 50% in the last year, benefitting from general strength in Japanese stocks. It’s Carl Icahn who’s the activist-in-residence at Netflix, Inc. (NASDAQ:NFLX), which is up over 200% in the last year. Icahn may be pushing for changes in company strategy or may be looking to push the company into selling. However, about 20% of Netflix, Inc. (NASDAQ:NFLX)’s float is held short as market players balk at the high valuation- the stock trades at over 70 times forward earnings estimates, and that’s with analysts looking for EPS to more than double next year.
We can also compare TiVo to Google Inc (NASDAQ:GOOG) and Time Warner Cable Inc (NYSE:TWC), as competitors. These two companies feature forward earnings multiples of 17 and 14, respectively, making them moderately priced compared to the other stocks we’ve discussed on that basis. In Google’s case this multiple incorporates significant earnings growth (the trailing P/E is 26), though as the advertising business improves and the Motorola Mobility business has become better integrated into the company net income was up 16% in its last quarterly report compared to the first quarter of 2012. Time Warner Cable’s recent results have been more modest, with reports showing revenue and earnings rising about 5% from their levels a year ago. However, markets have considerably lower expectations as a result and so it trades at 16 times trailing earnings.
Google Inc (NASDAQ:GOOG) and Time Warner Cable Inc (NYSE:TWC) are therefore growing enough in terms of their current valuation that they might be worth considering. Netflix and Sony Corporation (ADR) (NYSE:SNE), on the other hand, sound quite challenging in terms of valuation and we are wary of putting too much faith in Loeb to succeed in his moves at Sony. As for TiVo Inc. (NASDAQ:TIVO), it’s apparent that the company is not performing well as it currently stands and it’s possible that markets are looking for it to be acquired- not a thesis we generally have faith in. Therefore, even with the CEO buying the stock we’d recommend against getting too interested in TiVo at this time.
Disclosure: I own no shares of any stocks mentioned in this article.
