Tiger Cub Philippe Laffont’s Coatue Management reported a position of almost 4 million shares in Informatica Corporation at the end of September (see more of Laffont's stock picks). John Thaler’s JAT Capital Management and Christopher Lord’s Criterion Capital, two technology-biased hedge funds, each initiated a position in the company during the third quarter. Find more stocks that JAT Capital Management and Criterion Capital like.
We would consider International Business Machines Corp. (NYSE:IBM), Tibco Software Inc. (NASDAQ:TIBX), EMC Corporation (NYSE:EMC), and Oracle Corporation (NASDAQ:ORCL) to be among Informatica’s peers. These stocks generally trade at discounts to Informatica; when we look at trailing earnings multiples, for example, we see P/Es of 20 or lower except in the case of Tibco, which trades at 33 times trailing earnings. Of course, Tibco and Informatica have market capitalizations less than $5 billion, while the other three companies we’ve mentioned are worth 10 to 45 times that figure; this means that they have more room to grow, as well as that they have at least some potential to be acquired. Still, as we’ve mentioned it’s speculative to see Informatica as a growth company and we don’t like to invest in stocks based on the fact that it is possible someone might acquire the company. Forward earnings multiples for these four peers are all less than 20; IBM, EMC, and Oracle have forward P/Es in the 11-12 range and at that price they might be worth exploring. Oracle in particular did very well in its most recent fiscal quarter, with net income up 18% compared to the same period in the previous fiscal year.
We don’t think that Informatica is undervalued, and in particular it might be expensive compared to its larger peers even if it hits its earnings targets for the year. Its recent earnings beat left its net income down from a year ago, and at the very least that trend would have to reverse before we could begin to think about what earnings multiple would be appropriate for the company. We would avoid the stock.
Disclosure: I own no shares in any stocks mentioned in this article.