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SolarWinds Inc (SWI)’s Shares Crumble On Lower Revenues, Guidance

SolarWinds Inc (NYSE:SWI) dropped like a rock at the start of today’s trading session, and has yet to meaningfully break back up after announcing lower-than-expected second quarter results yesterday. The enterprise technology company released earnings per share of $0.52, surpassing the markets’ estimate by $0.06 for the period. However, its revenue came in lower at $119.07 million, missing Wall Streets’ expectations by $3.55 million. SolarWinds Inc (NYSE:SWI) reported growth of 17.3% in its revenue in comparison with the same quarter last year, whereas its earnings were up by 14.7%.

SolarWinds Inc updated its guidance for the current fiscal year as well, with the enterprise technology company expecting annual revenues of $502.0 million to $512.0 million compared to previous guidance of $512.0 to $527.0 million. The technology company improved its earnings guidance for the year on the other hand, to between $2.00 and $2.08 against prior estimates of $1.92 to $2.04. Nonetheless, the lower revenues and revenue guidance hasn’t been received very well by analysts, with big names including Deutsche Bank and Baird lowering their ratings to “Hold” along with lowered price targets. That has sent SolarWinds’ shares down by over 22% in afternoon trading.

While discussing the quarterly results, Kevin Thompson, CEO and President of SolarWinds, said, “During the second quarter of 2015 several areas of our business performed well including our MSP and Cloud businesses, license sales in our US Federal and Asia-Pacific businesses, our installed base teams’ sales efforts and our customer retention rates. In addition, we exceeded our margin and profit outlook and generated record cash flow from operations given the strength of our unique business model.”

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The shares of SolarWinds Inc (NYSE:SWI) have now declined by 26.73% year-to-date following the latest setback. Smart money had a bearish outlook of the company during  the first quarter, with 24 hedge fund managers investing $589.94 million in the company against previous holdings of $685.74 million from 28 hedge fund investors. The pull out of $100 million in capital was despite shares appreciating slightly during the first quarter, showing that for many hedge fund managers, a price target had been reached, and they anticipated little growth ahead, at least short term. Shares are down by over 28% since then.

We don’t just track the latest moves of 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, with backtests for the period between 1999 and 2012 and forward testing for the last 2.5 years. The results of our analysis show 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. Moreover, since the beginning of forward testing in August 2012, the strategy worked brilliantly, outperforming the market every year and returning 139%, which is more than 80 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).

The insiders at SolarWinds Inc (NYSE:SWI) have aligned their views with the smart money. Insiders of the company have made at least 17 sales in 2015, with Mr. Thompson selling 90,000 shares during this period. He made the largest sale on May 14, selling 45,000 shares of the company at a price of $48.57 per share, nearly $12 higher than their current level.

Let’s analyze the recent hedge fund movement in SolarWinds now to see how the smart money has been trading it.

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