Infoblox Inc (BLOX): Is Cadian Capital’s Bulishness a Sign of Recovery?

Eric Bannasch‘s Cadian Capital has reported in a new filing with the Securities and Exchange Commission having raised its stake in Infoblox Inc (NYSE:BLOX) to some 5.35 million shares, from 2.44 million shares held previously. Following the increase, Cadian Capital owns 9.7% of the company’s outstanding common stock. The stake is passive by nature.

Infoblox Inc (NYSE:BLOX)

During the second quarter, Cadian Capital boosted its stake in Infoblox Inc (NYSE:BLOX) by more than a tenfold, while first, the fund disclosed ownership of shares of the company in its 13F filing for the first quarter, initially owning 220,000 shares. The stock of Infoblox dropped by over 50% since the beginning of the year, after dropping from around $37 in January to $17 in February and after a small recovery it dropped further to around $13.

The decline came after Infoblox Inc (NYSE:BLOX) revised its outlook for the current year in February, saying that it expected revenue of $60-$61 million, lower than the previous estimates of $65-$66 million for the second quarter of fiscal 2014, while the GAAP net loss per share was expected in the range between $0.08 and $0.10.

Later that same month, Infoblox Inc (NYSE:BLOX) posted a net revenue of $60.9 million, up by 12% on the year and a net loss of $0.08 per share, versus $0.07 per share for the same period of last year. In the following quarters, the company expanded its net loss, which grew to $0.18 per share for the fourth quarter of its fiscal 2014, while for the full fiscal year, the net loss amounted to $0.45 per share, versus $0.09 for the previous fiscal year. In addition, at the end of May, the company’s CEO Robert Thomas stepped down from his position.

On the back of weak results, Infoblox Inc (NYSE:BLOX) is currently the subject of an investigation set to find out whether the company and its management breached their fiduciary duties while improperly conducting its accounting and recognizing revenue.

Nevertheless, other investors apparently see value in the company despite its weak financial results and accounting issues. During the second quarter, Michael Pollack‘s Destrier Capital upped its stake by over 450% to 1.02 million shares, followed by Gregory A. Weaver‘s Invicta Capital Management with 1.0 million shares, double over the quarter. Moreover, Ken Griffin‘s Citadel Investment Group increased its position in Infoblox Inc (NYSE:BLOX) by 88% to 637,800 shares.

The company looks like a good and cheap investment, though. Infoblox Inc (NYSE:BLOX) is engaged in connectivity solutions and earlier in May it was declared a market leader in enterprise-grade for DNS, DHCP and IP address management solutions, in an IDC report, having a market share of 50% in 2013, versus 40% a year earlier.

In fact, investors often put their money in companies whose stock price dropped significantly due to some accounting issues. They consider that the market is often overreacting in such situations and the stock has more room to grow after the slump. This is especially true for activist investors, who through their involvement can “fix” the company. This was the case of Hertz Global Holdings, Inc. (NYSE:HTZ), whose stock slumped after some accounting troubles have been discovered. Famous activist investor Carl Icahn initiated an 8% stake in the company in August and later got to appoint three independent directors to the board and had a major role in the step-down of the CEO Mark Frissora. Moreover, a couple of weeks ago, Barry Rosenstein‘s JANA Partners boosted its stake in Hertz to 32 million shares or 7% of the company.

In this way, Cadian’s recent ‘bullishness’ in Infoblox should not go unnoticed, since Mr. Bannash is an experienced investor in the technology sector, previously working at Richard Perry‘s Perry Capital. Cadian Capital has an equity portfolio worth around $3.4 billion, which is impressive growth from only $280 million reported in its first 13F filing for the end of 2007. The fund has a very diversified equity portfolio that is focused primarily on the technologies sector.

Disclosure: none

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