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These Three Companies Missed Estimates but See What Hedge Funds Think about Them Before Jumping to Conclusions

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Barracuda Networks Inc (NYSE:CUDA), Diamond Foods, Inc. (NASDAQ:DMND), and Landec Corporation (NASDAQ:LNDC) have just reported earnings and the companies’ shares have declined significantly in extended trading. However, hedge funds were quite confident in two of these companies in the second quarter, ignoring just one. Let’s take a closer look at the results of these three companies and see whether hedge funds are betting on their long-term growth.


We use the 13F filings of a select group of hedge funds to determine the top 15 small-cap stocks in which they hold long positions, based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market. These small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Moreover, since the beginning of forward testing from August 2012, the strategy worked just as our research predicted, outperforming the market every year and returning 118% over the last 32 months, which is more than 60 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).

Barracuda Networks Inc (NYSE:CUDA)’s shares slumped by over 22% in after-hours trading after the firm narrowly beat expectations in earnings, but missed revenue estimates. According to the cloud storage and security solutions firm, its adjusted net income was $5.63 million, or $0.10 per share for the second quarter of the fiscal 2016, beating the consensus estimate of $0.09 per share. It also reported revenue of $78.37 million, slightly below expectations of $78.7 million.

In its conference call, the company said it expects billings to increase by 10% to 13% for the third and fourth quarters of the 2016 fiscal year, down from its previous forecast of 16% to 18%, as EMEA and Asian sales are expected to be weak. For the current quarter, the firm expects revenues in the range of $79 million to $81 million and earnings per share between $0.07 and $0.08, missing the current consensus estimates of $82.5 million and $0.10 respectively. For the whole fiscal year, EPS guidance was reduced to $0.34 to $0.36 from $0.36 to $0.41, versus estimates of $0.39. Barracuda also announced that it will acquire Intronis, Inc., which has nearly 2,000 managed service providers managing IT needs of over 36,000 customers. Under the terms of the deal, Barracuda will pay $65 million in cash for the transaction.

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Among the three stocks we highlight in this discussion, Barracuda Networks Inc (NYSE:CUDA) is the most popular among hedge funds. At the end of June, there were 16 hedge funds long Barracuda, up by nine from the end of March. The value of their holdings, which amassed just 1.50% of all Barracuda’s outstanding stock, went up by a whopping 200% to $32.65 million, despite just a 2.99% increase in the stock’s price. Israel Englander’s Millennium Management owned 199,076 shares of Barracuda Networks by the end of June, which represented a new position in its equity portfolio.

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