Special Bulletin October 14, 2016
Sell Aerohive (HIVE)
Shares of Aerohive (HIVE) plummeted at the open today but have come back relatively strong and are now down just 2%. Trading volume is through the roof, with roughly 10-times normal volume already. I’ve seen three firms speak out: William Blair reiterated Outperform, Wunderlich downgraded from Buy to Hold (with a 5.00 price target), and Buckingham Research downgraded from Buy to Neutral. Shares are trading around 5.50 and are down roughly 2% today, far better than the down 20% opening price. At this point, we’re down roughly 18% from my initiation price, shares have broken their 200-day moving average and they have broken below the consolidation range from this spring.
The company is facing challenges in its E-Rate program, which fundamentally alters its growth profile and raises uncertainty. Takeout potential remains above average, in my opinion, but that’s a speculative way to invest—I prefer to own companies that we like as they are, and if they get bought out, that’s an added positive. The bottom line here is that I think news of Aerohive’s E-Rate challenges and the resulting analyst downgrades will percolate through the market over the weekend and it will be harder to sell at a favorable price early next week. The market is up today, and we can use that to our advantage. Therefore, I’m moving the stock from Hold to Sell today.
Long-term, I think this company will be okay and within two years will be bought out. So if you want to hold on to a small position, I can certainly see the rationale there. But my preferred strategy is to sell what’s become a weak stock and put the money to work in something that has the wind at its back. SELL.