ValueAct Capital founder Jeff Ubben (Trades, Portfolio) gained one new holding in the final quarter of 2016, NetScout Systems Inc. (NTCT, Financial).
Ubben founded ValueAct in 2000 and serves as the CEO and chief investment officer. He manages a concentrated portfolio composed of companies he believes are fundamentally undervalued or out of favor. He generally establishes a significant ownership stake in order to work with management on maximizing returns to shareholders. His current portfolio consists of 14 stocks and is valued at $12.17 million.
Ubben purchased 1,645,000 shares of NetScout for an average price of $30.68 per share, expanding the portfolio 0.43%.
NetScout is involved in application and network performance management. The Westford, Massachusetts-based company serves enterprise communities, government agencies and telecommunication service providers. It has a market cap of $3.5 billion; its shares were trading around $37.65 on Friday with a price-earnings (P/E) ratio of 418.3, a forward P/E ratio of 17.4, a price-book (P/B) ratio of 1.5 and a price-sales (P/S) ratio of 3.
The Peter Lynch chart below shows the stock is trading above its fair value.
GuruFocus ranked the company’s financial strength 6 of 10. The Piotroski F-Score of 7 and Altman Z-Score of 2.2 suggest the company is in good business condition with minor financial stress. Since the return on invested capital underperforms the weighted average cost of capital, the company is destroying value as it grows. While the cash-debt ratio of 1.2 indicates the company is capable of covering debt with cash on hand, the interest coverage ratio of 2.04 falls below Benjamin Graham’s standard of five, implying it may soon be burdened by debt.
GuruFocus ranked NetScout’s profitability and growth 8 of 10. It has an operating margin of 1.6% and a net margin of 0.6%. The return on equity (ROE) and return on assets (ROA) underperform 64% and 61% of other companies in the global software-application industry. In contrast, the return on capital (ROC) outperforms 53% of competitors.
NetScout does not pay a dividend.
Among the gurus invested in NetScout, Ken Fisher (Trades, Portfolio) has the largest holding with 3.6% of its outstanding shares. This represents 0.2% of his total assets managed. Chuck Royce (Trades, Portfolio), Third Avenue Management (Trades, Portfolio) and David Dreman (Trades, Portfolio) also hold the stock.
Technology stocks have a 23.1% weight in Ubben’s portfolio. Other technology stocks he holds are Seagate Technology PLC (STX, Financial) and Microsoft Corp. (MSFT, Financial). Microsoft is his largest holding with a weight of 19.7%.
Disclosure: I do not own any stocks mentioned in the article.
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