In this article, we will look at the 5 stocks that can crash after the Federal Reserve’s latest rate hike. If you want to explore similar stocks, you can also take a look at These 10 Stocks Can Crash After Federal Reserve’s Latest Rate Hike.
5. Extreme Networks, Inc. (NASDAQ:EXTR)
Debt-to-Equity Ratio: 3.36
Number of Hedge Fund Holders: 20
Extreme Networks, Inc. (NASDAQ:EXTR) is a network equipment manufacturer. The company develops and manufactures wired and wireless network infrastructure equipment, as well as software for network management. Though the stock is currently risky, On September 13, WestPark Capital initiated coverage of Extreme Networks, Inc. (NASDAQ:EXTR) with a Buy rating and a $20 price target.
On July 27, Extreme Networks, Inc. (NASDAQ:EXTR) announced earnings for the fiscal second quarter of 2022. According to the company’s balance sheet, Extreme Networks, Inc. (NASDAQ:EXTR) has total debt of $351 million, which brings its debt-to-equity ratio to 3.36. The company’s trailing twelve-month operating margins sit at 6.56%. Higher interest rates can strain the company’s cash flows and profits. As of September 19, Extreme Networks, Inc. (NASDAQ:EXTR) has lost 16% of its value year to date and can crash further if the Fed hikes interest rates.
At the close of Q2 2022, 20 hedge funds were bullish on Extreme Networks, Inc. (NASDAQ:EXTR). The collective stakes of these hedge funds amounted to $82.7 million. This is compared to 18 positions in the previous quarter with stakes worth $105.6 million.
As of June 30, Voss Capital owns 3.1 million shares of Extreme Networks, Inc. (NASDAQ:EXTR) and is the largest investor in the company. The investment covers 8.96% of Voss Capital’s 13F portfolio.
Here is what Voss Capital had to say about Extreme Networks, Inc. (NASDAQ:EXTR) in its second-quarter 2022 investor letter:
“EXTR is now the Voss Value Fund’s third largest position at 10% of the portfolio (behind GFF and SWIR). EXTR is a leader in wireless and wired networking equipment (switches, access points, routers), particularly in large scale, complex wi-fi deployments such as hospitals and sprawling university campuses. The Fund has owned EXTR since the middle of 2020 and have previously shared our research on it publicly (see the Voss Q3 2020 Quarterly Letter).
At the start of 2020, the company had a >3.0x net leverage ratio and new product orders briefly collapsed around the Covid-related shutdowns. Fast forward to today and leverage is under 1.0x and the shares are even cheaper at 7.5x our next twelve months’ free cash flow estimate (as of the middle of July), despite their product order backlog being well over 10x what is historically normal. In other words, right as its valuation hits a historic low on a free cash flow basis, we believe the company’s visibility has never been higher…” (Click here to see the full text)
