Activist investors can be a mixed bunch. They’re on the hunt for companies that are undervalued, or could make some changes and kick off higher growth. By buying a large stake and petitioning management, these companies can effectively create their own positive returns.
Investors who follow along with activist investors, particularly those with a strong track record, can also see great returns within the span of a few quarters as value hidden in plain sight is unlocked.
For instance, Starboard Value, one of the most successful activist firms, has recently taken a stake in design software firm AutoDesk (ADSK).
AutoDesk has been a lackluster stock over the past year, with shares trading flat. And as a software company, its 13% profit margin is well under that of some of the big tech companies today sporting 30%+ margins.
Chances that improve the company’s cash flow and profit margin could be great for shares. Especially given the low costs of the software industry and the ability to roll out new features like AI tools.
Action to take: Special situation investors may like to follow along with Starboard and build a position here. If some changes can be made that look like they’ll improve operations, the backing of Starboard could lead to shares taking off in the months ahead.
For traders, the July $310 calls, last trading for about $6.75, could see further mid-double-digit returns from here.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.