In a new filing with the Securities and Exchange Commission, activist J. Carlo Cannell‘s Cannell Capital reiterated its position in Envivio Inc (NASDAQ:ENVI) and issued a presentation, in which it expresses concerns regarding the company’s performance and once again urges the shareholders to withhold their votes for two incumbent directors at the Annual Meeting. Cannell owns around 1.66 million shares of Envivio, which represent 6.12% of the nano-cap company’s outstanding common stock.
Following the activity of activists like Cannell is particularly important for smaller investors who want to profit through piggybacking the moves of smart money, because generally when an activist with a solid track record of winning campaigns and proxy fights gets involved into yet another company, it usually indicates a potential for an upside for the stock. Cannell filed its first 13D regarding Envivio Inc (NASDAQ:ENVI) back in January and the stock has gained more than 25% since then. This is also supported by the fact that most often companies in the middle of an activist campaign usually witness an inflow of capital from other large investors, such as passive hedge funds. The increase in popularity is also a good sign, especially for small cap companies, which align with our strategy. We determined that most popular small-cap picks among hedge funds have a potential to beat the market by nearly one percentage point per month. This approach also showed returns of more than 135% in the last 2.5 years of forward testing, versus some 55% for the S&P 500 ETF (SPY) (see more details here).
Envivio has been performing poorly since its IPO in May 2012 as its stock has dropped by more than 80%. The weak performance of the stock is related to the disappointing financial results in the years that the company has been public. In its presentation, Cannell Capital blames the management for providing improper forecasts that couldn’t have been met by wide margins. Cannell added that Envivio has an unsustainable cost structure and it has been increasing its expenses as the revenue has been declining.
In addition, Cannell also states in the presentation that Envivio Inc (NASDAQ:ENVI), which is engaged in providing software-based Internet Protocol video processing and distribution solutions across different formats and networks, is underperforming its competitors, such as Elemental Technologies, which was founded six years after Envivio, but which managed to achieve a 50% revenue growth last year, while Envivio’s revenue declined by 4%.