FireEye (FEYE) – Closing Short Position – down 25% vs. S&P up 27%
We put FireEye (FEYE: $11/share) in the Danger Zone on June 27, 2016. At the time, FEYE received an Unattractive rating. Our short thesis noted the firm’s profitless revenue growth, industry-worst profitability, and overvalued stock price.
This Danger Zone report, along with all of our research, utilizes our “novel dataset” of footnotes disclosures to get the truth about earnings, as shown in the Harvard Business School and MIT Sloan paper, “Core Earnings: New Data and Evidence.”
During the nearly four-year holding period, FEYE outperformed as a short position, falling 25% compared to a 27% gain for the S&P 500.
FEYE’s fundamentals, while still weak, have improved since our original report. Its return on invested capital (ROIC) improved from -24% to -9% in 2019 and after-tax operating profit (NOPAT) margin increased from -62% to -22% over the same time. However, despite falling 33% year-to-date, FEYE is still overvalued. This performance, coupled with rumors that Cisco could be interested in acquiring the firm, lead us to take the gains and close this short position.
Figure 1: FEYE vs. S&P 500 – Price Return – Successful Short Call
Sources: New Constructs, LLC and company filings
Note: Gain/Decline performance analysis excludes transaction costs and dividends.
This article originally published on March 30, 2020.
Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.
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 In Core Earnings: New Data & Evidence, professors at Harvard Business School (HBS) & MIT Sloan empirically show that data is superior to IBES “Street Earnings”, owned by Blackstone (BX) and Thomson Reuters (TRI), and “Income Before Special Items” from Compustat, owned by S&P Global (SPGI).
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