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Hortonworks Stock: Should you add HDP to your portfolio?


Aug.17.2016

Hortonworks Stock: Should you add HDP to your portfolio?

If you are an Invest Diva insider, you probably already have some detailed info on the Hortonworks stock analysis. Shares of Hortonworks, (NASDAQ: HDP) dropped to an important support level on worse than expected earnings beginning of August. Should you still consider adding it to your portfolio? 

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hortonworks stock HDP Logo hortonworks stock HDP Logo

 

1- Hortonworks Stock: What the Heck is it?

Hortonworks is a business computer software company based in Santa Clara, California. They develop enterprise solutions based on Apache Hadoop, a project that develops open-source software for scalable distributed computing.

Hadoop: First time I heard of Hadoop, I thought it was some sort of "hard poop". Turns out it is quite the contrary. Hadoop provides massive storage for any kind of data, enormous processing power and the ability to handle virtually limitless concurrent tasks or jobs. It is basically a healthy diarrhea of future technology.

Keep in mind that Hadoop is 10 years old, while Hortonworks is five.

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The fact that Hortonworks focuses on development of Hadoop, makes it an ideal long-term investment for those who believe big data is the future of tech. What Hortonworks and it competitors do, is that they essentially make using Hadoop to manage big data much easier to adopt. You can leverage Hadoop better, if you use Hortonworks.

Customers: Current  Hortonworks customers include Expedia, T-Mobile, Pandora, Zulily, Bloomberg, ebay among others.

Industries: Hortonworks has solutions for a variety of industries, including but not limited to financial services, healthcare, insurance, manufacturing, retail and public sector.

 

2- Hortonworks Stock Fundamentals: Is Now a Good Time?

Hortonworks stock shed 28% of its market cap post-earnings in August. Is this the beginning of a tragedy? Or is it a bottom? Here are three things you need to know about Hortonworks stock fundamentals

1- Hortonworks Competitors: The company's main competitors are Silicon Valley's Cloudera and San Jose-based MapR. Neither are publicly traded companies, however many analysts are anticipating an IPO for both.

2- Someone could acquire Hortonworks: Big data is a big play but not growing as fast as other areas....yet. Hortonworks was the first Big Data IPO but the theme hasn’t worked as strong as people hoped. The company is cheap at less than 1 billion USD in market cap so it could be tempting for many. With the M&A market on fire, we could see potential buyers such as Intel, Oracle, Microsoft, IBM, HP or even Salesforce to buy out Hortonworks.
Estimated price: 2 billion USD.

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3- Big data, big prospects, but no profits... YET: Why isn't Hortonworks' revenue growth translating into profits? Earlier in August, management pointed to its success in signing customers to multiyear-long subscription plans as one reason, explaining that it takes "a longer time, obviously," to recognize revenue and record profits from these deals.

While the company's subscription model impairs earnings, we could argues that growth in both operating cash flow  and earnings points to a strong path to profitability.

 

To sum it up, the competition has yet to impact Hortonworks stock, however the future still seems bright for the company. While Cloudera has great management and if they go public they could affect Hortonworks stock in a negative way, there still is room for two data companies in the field. An acquisition could certainly give the company a boost if it happens. Also most analysts cited on S&P Global Market Intelligence see revenue growing strongly at Hortonworks over the next few years. Even if the latest estimates look a bit light, they still imply revenue growth of 45% this year over 2015 levels. And if an investor can wait as long as 2020, S&P Global data show Hortonworks revenue more than trebling to $578 million.

 

3- Hortonworks Stock: Technical Analysis

Let’s face it, Hortonworks stock was a horrible experience for early investors from January 2015 all the way to August 2016. During this time, it dropped nearly 68%. However looking at the technical point of the Invest Diva Diamond, we can see upcoming signals possibly supporting the above fundamental points. 

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Hortonworks stock broke below the ichimoku cloud after the dismal earnings in August, but failed to reach the all-time-low of $7.35 from back in February 2016. Now this is no immediate bullish signal especially for medium/ short term traders. However the stock seems to be supported by the new 78% Fibonacci level at $8.75, forming a bullish engulfing candlestick formation on the daily chart.

While a break below $8.75 could temporarily change our outlook to bearish, failure to do so would be our first bullish signal.

Hortonworks Stock - HDP Technical Analysis Hortonworks Stock - HDP Technical Analysis

There certainly is still room for further drops towards 7.30.

Summary: While the fundamentals for Hortonworks stock indicates a bright future for the stock - whether by an acquisition or increased profit - we still don't have the ultimate reversal signal on the technical side.

Hortonworks Stock Investing Strategy

If the company sounds appealing and if you find big data to be the big future, you could get in a long term position now,  and add on to your position if it drops further to lower your average.

Otherwise, you can wait for a technical bullish Ichimoku signal to invest with more confident.

Here are the important HDP levels to keep an eye on:

Support Levels Turning Point Resistance Levels
8.75 11.42 16
7.30 10 13

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