Shares of MicroStrategy Incorporated (NASDAQ:MSTR), Rent-A-Center Inc (NASDAQ:RCII), Cheesecake Factory Inc (NASDAQ:CAKE), and Marvell Technology Group Ltd. (NASDAQ:MRVL) are off substantially in early morning trade today. Let’s find out why these stocks are falling and see if the smart money disagrees with the market on any of them.
We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 102% since then and outperformed the S&P 500 Index by around 53 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.
MicroStrategy Incorporated (NASDAQ:MSTR) is off by 10.83% in early morning trading after the company reported third quarter earnings of $2.06 per share on revenues of $129.54 million, beating profit estimates by $0.10 per share but missing revenue expectations by $8.22 million. In a sign of future softer demand, product license and subscription service revenue fell by 15% year-over-year to $34.1 million. Business is slowing as MicroStrategy Incorporated’s competitors gain market share, although management is doing a good job at controlling costs. Investors are selling because cost-cutting is not sustainable without revenue growth. MicroStrategy Incorporated (NASDAQ:MSTR) needs demand to pick up again for the stock to do well. Of the 730 elite funds we track, 28 owned $464.83 million of the company’s shares, accounting for 24.10% of the float, on June 30. Ricky Sandler‘s Eminence Capital owned 888,960 shares at the end of June.
Rent-A-Center Inc (NASDAQ:RCII) has fallen by 25% after the rent-to-own operator reported third quarter earnings of $0.47 per share on revenues of $791.6 million, beating analyst profit estimates by $0.02 per share but missing revenue expectations by $11.65 million. Core U.S same-store sales declined by 0.2 percentage points and the company took a $34.7 million pre-tax inventory write-down due to its older smartphone inventory. Guidance is soft, with management expecting fourth quarter earnings per share of $0.52-to-$0.60 versus the consensus analyst estimate of $0.68 per share. The improving U.S economy and sharing economy could be having a negative effect on demand, although given the low forward P/E, a lot of the bad news has been priced in already. 31 funds owned $311.08 million of the company’s shares, or 20.70% of the float, on June 30.
On the next page, we examine why Cheesecake Factory and Marvell Technology are down.