Is Sonic Corporation (SONC) a Buy as It Plunges 10% On Cautious Forecast For FY2015?

Page 1 of 2

After the markets closed on Monday Sonic Corporation (NASDAQ:SONC) reported its fiscal third-quarter financial results. The fast food company’s results for the fiscal third quarter were in-line with the expectations.  The company reported Earnings Per Share (EPS) of $0.36 with a revenue of $164.7 million, in-line with Thomson Reuters consensus estimates of $0.36 in EPS and $164.17 million in revenues. In this way, Sonic Corporation (NASDAQ:SONC) posted a 20% increase in EPS and a $12 million gain in revenue. The major talking point was a conservative guidance given by the company for the fiscal year 2015. Sonic Corporation (NASDAQ:SONC) expects the EPS to grow in the range between 27% – 29% from its FY2014 EPS of $0.84, but it is below the consensus estimate of $1.09. This forecast from the company has impacted the stock, as it declined by 10% on Tuesday. How do hedge funds feel about Sonic Corporation and is it the right time to buy this stock?

Sonic Corporation (NASDAQ:SONC)

We don’t just track the latest moves of hedge funds. We are, in fact, more interested in their 13F filings, which we use to determine the top 15 small-cap stocks held by the funds we track. We gather and share this information based on 16 years of research which showed that these 15 most popular small-cap picks have a great potential to outperform the market, beating the S&P 500 Total Return Index by nearly one percentage point per month in backtests, and easily beating the most popular large-cap picks of funds, which nonetheless get the majority of their collective capital. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic only the very best ideas of the best fund managers on your own? Since the beginning of forward testing in August 2012, the Insider Monkey small-cap strategy has outperformed the market every year, returning 142%, nearly 2.5 times greater returns than the S&P 500 during the same period (see more details).

It is very important to track the hedge fund and insider activity on the stock as it can give a different perspective. Hedge funds generally do a detailed research on their stock picks and tracking these hedge funds could help us in gaining an advantage. On the other hand, insider activity on the stock is as important as the hedge fund activity, as the insiders have the luxury of more information about the stock when compared to hedge fund managers and analysts.

The number of hedge funds’ positions in Sonic Corporation (NASDAQ:SONC) dropped to 21 at the end of the first quarter from 23 in the previous quarter. This shows that hedge funds are not too positive on this stock. Even though the number of hedge fund position in the stock has reduced, the aggregate capital invested in the stock by hedge funds went up by 14% to $130.9 million by the end of first quarter. This increase in aggregate capital investment cannot be considered as a bullish sentiment from hedgies’, as the stock has gained around 20% during the first quarter.

Page 1 of 2