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Teradata (TDC) Has Fallen 25% in Last One Year, Underperforms Market

Alex Smith
·4 mins read

If you are looking for the best ideas for your portfolio you may want to consider some of RiverPark Advisors top stock picks. RiverPark Advisors, an investment management firm, is bullish on Teradata Corp (NYSE:TDC) stock. In its Q2 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Teradata Corp (NYSE:TDC) stock. Teradata Corp (NYSE:TDC) is a software company.

In July 2019, RiverPark Advisors had released its Q2 2019 investor letter. The investment firm said that Teradata Corp (NYSE:TDC) stock was one of the top detractors to the Large Growth fund's performance in Q2 2019. Teradata Corp (NYSE:TDC) stock has posted a return of -25.1% in the trailing one year period, underperforming the S&P 500 Index which returned 10.7% in the same period. This suggests that the investment firm was wrong in its decision. On a year-to-date basis, Teradata Corp (NYSE:TDC) stock has fallen by 13.6%.

In Q2 2019 investor letter, RiverPark Advisors said the Large Growth fund posted a return of 7.4% in the second quarter of 2019, outperforming fund's benchmark the S&P 500 Index which returned 4.3% in the same period. Let’s take a look at comments made by RiverPark Advisors about Teradata Corp (NYSE:TDC) stock in the Q2 2019 investor letter.

"Teradata: TDC was a top detractor for the quarter, as its shares sold off on mixed first quarter results. Teradata reported solid results on the metrics that we consider most important: annual recurring revenue (ARR) growth of 12% (common currency), higher gross margins, lower operating expenses, and better-than-expected EPS. License and consulting revenues disappointed, however, with larger-than-expected declines of 55% and 22%, respectively. While we expect license and consulting revenue declines, as Teradata is transitioning its business model to recurring revenue sales, we are more focused on the company’s subscription revenue. Importantly, management modestly raised its guidance for ARR growth.

Teradata, a data warehousing and analytics vendor, historically sold software on a perpetual license basis that ran on proprietary hardware. The company has spent the last few years reconfiguring as a SaaS solution that runs on any hardware customers choose, including private and public cloud. This transition predictably depressed near-term revenue, but TDC is growing its customer base as it is bringing back many former customers that prefer the SaaS model. In the first quarter, despite reporting an overall 7% revenue decline, ARR grew 12%, reaching $1.3 billion, similar to the results experienced during similar transitions that Microsoft and Adobe went through.

In addition, as SaaS revenue scales, company operating margins should expand significantly from last year’s 2%, to (in a few years) over 20%, approaching its SaaS peers. Also like its SaaS peers, TDC has upfront expenses, but deferred revenue, so the company’s free cash flow and margin are better yardsticks for its business success. With expenses front-loaded, TDC’s free cash flow margin was only 10% last year, but moving towards 20%, as we believe the company’s free cash flow should double in three years. We added to our position on weakness during the quarter and Teradata is a core holding in the Fund."

16 Most Technologically Advanced Countries in the World in 2017
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Stasique/Shutterstock.com

In Q2 2020, the number of bullish hedge fund positions on Teradata Corp (NYSE:TDC) stock increased by about 29% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Teradata's growth potential. Our calculations showed that Teradata Corp (NYSE:TDC) isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.