What’s the Deal With These 4 Falling Stocks?

With all three major indexes now solidly in the green as the market brushes off any pernicious worries over rising rates and falling crude prices, shares of FleetMatics Group PLC (NYSE:FLTX), Methode Electronics Inc. (NYSE:MEI), Netflix, Inc. (NASDAQ:NFLX), and Fortinet Inc (NASDAQ:FTNT) are going the opposite way, as they are falling hard. In the following article, we examine why each stock is falling and also analyze what the world’s greatest investors think of each of them.

In the eyes of most traders, hedge funds are assumed to be underperforming, old investment tools of the past. While there are more than 8,000 funds in operation at present, hedge fund experts at Insider Monkey look at the aristocrats of this group, around 730 funds. Contrary to popular belief, Insider Monkey’s research revealed that hedge funds underperformed in recent years because of their short positions as well as the huge fees that they charge. Hedge funds actually managed to outperform the market on the long side of their portfolios. In fact, the 15 most popular small-cap stocks among hedge funds has returned 102% since the end of August 2012 and beaten the S&P 500 Index by 53 percentage points (see the details here).

Leading off our list of retreating stocks is FleetMatics Group PLC (NYSE:FLTX). Shares of the software-as-a-service provider of fleet management solutions have fallen by 2.9% due to technical selling after FleetMatics Group PLC (NYSE:FLTX) shares closed below a key simple moving average yesterday. Given that shares are up by over 50% year-to-date, investors are also selling for the purposes of profit taking. Demand for the company’s software has been strong in recent quarters as FleetMatics has beaten analyst earnings and revenue estimates every quarter this year. Shares could use some time to consolidate, however, given the company’s forward P/E of 31.51. Of the funds that we track, 13 of them owned FleetMatics shares as of the most recent 13F reporting period.

In other news, Methode Electronics Inc. (NYSE:MEI), a global developer of custom engineered and application specific solutions and products, is off by 13.51% after it reported second quarter of fiscal year 2016 EPS of $0.54 on revenue of $208.4 million. Although EPS exceeded analyst estimates by $0.01, Methode’s revenue missed expectations by $4.71 million and represented a decline of 9.3% year-over-year, as currency rate fluctuations and weaker macro-economic conditions weighed on sales. In addition, consolidated gross margins as a percentage of sales declined to 24.4% from last year’s 26.2%. Because of the company’s disappointing quarter, Methode has revised its fiscal year 2016 EPS guidance to $2.06-to-$2.18, with expected revenue of $805 million-to-$825 million. Chief Executive Officer Donald W. Duda said in a press release detailing the earnings:

“Our decision to revise guidance is based on our belief that softness in the Interface and Power Products segments’ end markets will continue through the second half of the fiscal year. Additionally, legal expenses associated with the litigation related to Hetronic are anticipated to be higher than we originally expected, impacting our profitability.”

Hedge fund sentiment for Methode Electronics Inc. (NYSE:MEI) was stable in the third quarter, with the number of funds long the stock declining by just one quarter-over-quarter to 23 funds owning around 11.2% of the float.

On the next page, we examine the news regarding Netflix and Fortinet and the market’s reaction to it.

Next up on our list of falling stocks is Netflix, Inc. (NASDAQ:NFLX), whose shares are in the red today as investors remain cautious given the stock’s proximity to its 52-week high. Because Netflix isn’t solidly profitable like other companies and its stock has more than doubled this year, Netflix is prone to sentiment shifts, which would be especially felt if more competition were to come into the internet streaming arena. Although Apple Inc. (NASDAQ:AAPL) has put its $30-to-$40 per month live TV service on hold for the moment, as content creators ask for more fees for their programming, other streaming services such as HBO Now could put a dent in Netflix, Inc. (NASDAQ:NFLX)’s growth numbers. Given the increasing competition, Netflix’s future increasingly depends on how well its own shows do, and fortunately for the company, Netflix recently received more Golden Globe nominations than any of the broadcast networks did. Many elite funds are bullish on Netflix, with Andreas Halvorsen‘s Viking Global among them, with a stake of 4.52 million shares at the end of September.

Last on our list is cyber security provider Fortinet Inc (NASDAQ:FTNT), whose shares are off by 3% on the day after analysts at Citigroup crunched the numbers from a survey of 51 chief information security officers and concluded that among other things, Fortinet Inc (NASDAQ:FTNT) could experience ‘less favorable trends’. Whether the survey actually predicts the future direction of Fortinet’s demand is up for debate, but investors are selling first and asking questions later. Cyber security is a big growth area, and Fortinet could continue to do well if management executes. 36 elite funds were long Fortinet shares as of September 30.

Disclosure: None