Nano-cap Violin Memory Inc (NYSE:VMEM) reported a fiscal first quarter loss of $0.16 per share on revenue of $9.7 million, beating the bottom-line estimate by one cent but missing the top line by $1.8 million. Total sales contracted 19.8% year-over-year, as product sales fell 39% to $4.16 million and service sales rose 5.3% to $5.56 million. The company ended the quarter with cash, restricted cash, and investments of less than one year in duration of $49.2 million at the end of the first quarter. Violin Memory Inc (NYSE:VMEM) has no debt. The company needs to stop the cash burn and losses to do well. Despite the small size, Violin Memory managed to capture the attention of several hedge funds, although its popularity inched down during the first quarter, according to the latest round of 13F filings.
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According to most investors, hedge funds are perceived as slow, outdated investment vehicles of years past. While there are over 8000 funds in operation at present, Our experts choose to focus on the crème de la crème of this club, approximately 700 funds. These investment experts administer bulk of the hedge fund industry’s total asset base, and by tailing their best stock picks, Insider Monkey has discovered various investment strategies that have historically outpaced Mr. Market. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points per annum for a decade in their back tests.
Keeping this in mind, let’s take a look at the latest action encompassing Violin Memory Inc (NYSE:VMEM).
Heading into the second quarter of 2016, a total of seven of the hedge funds tracked by Insider Monkey held long positions in this stock, down by one from the fourth quarter of 2015. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, billionaire George Soros’ Soros Fund Management holds the largest position in Violin Memory Inc (NYSE:VMEM). Soros Fund Management has a $8.8 million position in the stock, comprising 0.2% of its 13F portfolio. On Soros Fund Management’s heels is Andalusian Capital Partners, managed by Michael Reeber, which holds a $4.2 million position; 3.7% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors with similar optimism contain Matthew Knauer and Mina Faltas’s Nokota Management, George Hall’s Clinton Group and Joseph A. Jolson’s Harvest Capital Strategies.
On the next page, we are going to take a look at some funds that dumped their stakes in Violin Memory heading into the second quarter. In addition, we are going to compare the company to some other stocks with a similar valuation in order to get a better sense of its popularity among hedge funds.
Because Violin Memory Inc (NYSE:VMEM) has experienced a bearish sentiment from the smart money, it’s safe to say that there exists a select few funds who sold off their entire stakes last quarter. Intriguingly, Ryan Heslop and Ariel Warszawski’s Firefly Value Partners dropped the largest investment of all the hedgies tracked by Insider Monkey, worth about $0.2 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also cut its stock.
Let’s now review hedge fund activity in other stocks similar to Violin Memory Inc (NYSE:VMEM). We will take a look at Rentech, Inc. (NYSEAMEX:RTK), Good Times Restaurants Inc. (NASDAQ:GTIM), Transition Therapeutics Inc (USA) (NASDAQ:TTHI), and Morgans Hotel Group Co. (NASDAQ:MHGC). This group of stocks’ market values are closest to VMEM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RTK | 5 | 11076 | -3 |
| GTIM | 4 | 6284 | -2 |
| TTHI | 4 | 931 | -1 |
| MHGC | 11 | 10220 | -2 |
As you can see these stocks had an average of six hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $5 million in VMEM’s case. Morgans Hotel Group Co. (NASDAQ:MHGC) is the most popular stock in this table. On the other hand Good Times Restaurants Inc. (NASDAQ:GTIM) is the least popular one with only 4 bullish hedge fund positions. Violin Memory Inc (NYSE:VMEM) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard MHGC might be a better candidate to consider a long position.
Disclosure: None
