TechTarget Inc’s (TTGT) stock has more than tripled over the past year, rising by over 200 percent. However, what seems most surprising about the stocks run is that institutional and hedge fund investors haven’t been the ones driving the price up.
In fact, when looking at the holder’s list, we find that just a handful of investors hold a significant portion of the marketing company’s shares, and the stocks sharp rise may be a function of supply and demand more than the fundamentals of the business. The stock was added to the WhaelWisdom WhaleIndex 100 on May 16, 2018.
At the end of the first quarter, nearly 28.51 million total shares were outstanding for the company, and the top-five investors held almost 60 percent of the shares, while the top-10 holders retained almost 75 percent of the stock. The top 10 holders are made up of index funds, venture funds, and Roger Marino -a board member and founder of EMC Corp. It leaves other investors scrambling to buy whatever stock is freely available to trade daily.
Institutions Not Active
Aggregate 13F shares among institutions only increased to 15.65 million shares in the quarter up by 1.25 percent. Meanwhile, holdings among hedge funds fell by about 1 percent to 5.621 million shares. Only 31 institutions created new positions in the stock, while 32 added to the existing one. However, here is the problem, only 26 funds reduced their holdings while 9 exited the stock entirely. More demand than supply has helped to push shares higher.
Of course, there is a substantial reason why investors are flocking into this stock, and it comes on the heels of strong revenue growth, which is driven by the company’s IT Deal Alert product which saw revenue surge by 31 percent in the first quarter.
Strong growth is expected to continue when the company reports second-quarter results in August, with analysts looking for revenue to climb 15.5 percent to $30.81 million, while earnings are seen jumping by 107 percent to $0.19 per share.
However, like the stock, the valuation for the company has soared, and shares are now trading at over 31 times next years earnings. When considering the company is expected to grow earnings in 2019 at 35 percent, the PEG ratio, which adjusts for earnings growth, is cheap at 0.91, a level below 1 suggest earnings are growing faster than the PE Ratio.
It would seem shares of the stock are soaring for two reasons, a limited supply of shares and steady earnings and revenue growth. However, at some point, the big holders may be tempted to start unloading some of those shares, there just better be enough buyers to absorb them all.