At a time when the S&P 500 is down by 0.24% and the NASDAQ is down by 0.32%, shares of RetailMeNot Inc (NASDAQ:SALE), Plug Power Inc (NASDAQ:PLUG), Zynga Inc (NASDAQ:ZNGA), and American Eagle Outfitters (NYSE:AEO) are going against the grain in a big way. Let’s find out why and analyze what the smart money thinks of each stock.
RetailMeNot Inc (NASDAQ:SALE) is up by 20.64% in early morning trading after reporting third quarter earnings of $0.12 per share on revenues of $52.41 million, beating estimates by $0.08 per share and $3.83 million, respectively. Although desktop visits declined by 19% year-over-year to 92.5 million, mobile visits jumped by 41% to 67.2 million. Guidance was strong, with management expecting adjusted EBITDA of $66 million-to-$68 million on revenues of $240 million-to-$242 million, versus analyst estimates of $60.2 million and $236.5 million respectively. With the company’s solid third quarter earnings report, RetailMeNot is showing it can be profitable despite mobile revenues per user being less lucrative than desktop revenues per user. If the company can continue its mobile monetization progress, shares can do well in the medium term. Of the 730 elite funds we track, 21 funds owned $197.77 million worth of the company’s shares, accounting for 20.80% of the float, on June 30. Matt Sirovich and Jeremy Mindich‘s Scopia Capital owned 6.7 million RetailMeNot shares at the end of the second quarter.
We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.
Plug Power Inc (NASDAQ:PLUG) is up by 8.9% as sentiment around the fuel cell forklift manufacturer improves. Plug Power shares have had a roller-coaster year, with the stock at one point falling to $1.60 per share in late August before rallying to $2.87 today. Given the recent surge, shares have broken above their 200-day simple moving average, a move that is likely causing some of the 20.32% of the float that is short to cover. Hedge funds are indifferent to Plug Power, as only six funds reported stakes worth $2.13 million, accounting for just 0.50% of the float as of the end of June, with quant fund D. E. Shaw among them with a holding of 273,770 shares.
On the next page, we examine why Zynga and American Eagle Outfitters are rallying.
Zynga Inc (NASDAQ:ZNGA) is up by 1.46% in morning trading after gaming giant Activision Blizzard, Inc. (NASDAQ:ATVI) announced that it will buy King Digital Entertainment PLC (NYSE:KING) for $5.9 billion, or $18 in cash per share. Although Zynga doesn’t have the same mobile presence as King Digital, it has plenty of hit games and a talented workforce that other gaming giants might be interested in. Many hedge funds are optimistic on Zynga, as 29 funds we track reported Zynga stakes worth $619.41 million as of the end of June.
CEO Mark Pincus has given no indication that he wants to sell the company, however. Zynga’s stock hasn’t done very well in the past year, with shares down by 10.15% year-to-date. Shares will likely remain weak until the company adjusts to mobile or comes up with another hit franchise.
American Eagle Outfitters (NYSE:AEO) shares surged by 8.19% after the company pre-released some bullish third quarter financial numbers. For the quarter, comparable-store sales jumped by 9% year-over-year, while EPS came in at $0.34 per share, beating analyst estimates of $0.31 per share. Interim CEO Jay Schottenstein said:
In a highly challenging retail environment, we are extremely pleased to see our AE and Aerie brand customers respond positively to product and quality enhancements. We continue to experience greater full-priced selling and less promotional activity, resulting in profit margin expansion
American Eagle also announced that it will acquire Tailgate Clothing Company, a vintage sports-inspired apparel brand, for $11 million in cash and stock. 36 funds in our database reported long positions in American Eagle worth $429.01 million as of the end of June, with Joel Greenblatt‘s Gotham Asset Management among them, holding a stake of 2.15 million shares.