Allot Communications Ltd. (NASDAQ:ALLT) issued an update to its earnings guidance for the second quarter earlier today. The company reported solid financial results for the first quarter, posting $0.03 in earnings per share, beating the consensus EPS expectations by $0.02. But the broadband solutions provider missed on its revenues as it reported revenue of $29.5 million for the quarter, $0.29 million short of expectations. Earlier today, Allot Communications Ltd. (NASDAQ:ALLT) updated its guidance for its second quarter results, for the period that ended on June 30. The company is forecasting a net loss in earnings per share for the period, whereas the Thomson Reuters consensus EPS for the quarter stands at $0.07. Allot Communications Ltd. (NASDAQ:ALLT) also issued revenue guidance for the quarter of $21 – $22 million, well below the consensus estimate of $30.43 million. This huge reverse step from the company did not go over well with the investors; Allot Communications Ltd. (NASDAQ:ALLT)’s stock dropped around 11% in pre-market trading and is currently trading at around 15% lower than where it closed on Thursday. In this a good opportunity to get in on the stock, or are the revisions too ghastly to make it a viable purchase even at the reduced price? Let’s take a look at a couple of important metrics to try and determine its potential, those being the activity in the stock among the smart money, as well as insiders of the company.
At the end of March, there were 12 hedge funds with $45.19 million investment in Allot Communications Ltd. (NASDAQ:ALLT). There were 13 hedge funds with around $61.67 million invested at the end of 2014. As Allot Communications Ltd. (NASDAQ:ALLT)’s stock lost just 3% of its value in the first three months, we can see that there was a large flight of capital from the stock among the best investors in the world. They have certainly been right to flee the stock, as it had dropped by over 31% since the end of the first quarter and was down heavily since then even before today.
Most investors don’t understand hedge funds and indicators that are based on hedge fund and insider activity. They ignore hedge funds because of their recent poor performance in the long-running bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns enjoyed (or not) by investors. We uncovered through extensive research that hedge funds’ long positions in small-cap stocks actually greatly outperformed the market from 1999 to 2012, and built a system around this. The 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 80 percentage points since the end of August 2012 when this system went live, returning a cumulative 135% vs. less than 55% for the S&P 500 Index (read the details).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors that often lead to greater returns. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. There were no insider purchases or sales of Allot Communications shares in the last six months.
Keeping this in mind, let’s check out the latest hedge fund activity in Allot Communications Ltd. (NASDAQ:ALLT).