Here is What Hedge Funds Think About Zendesk Inc (ZEN)

The 700+ hedge funds and money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the third quarter, which unveil their equity positions as of September 30. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund positions. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Zendesk Inc (NYSE:ZEN) .

So, is Zendesk Inc (NYSE:ZEN) a sound investment today? The smart money seems to be taking a pessimistic view. The number of long hedge fund positions inched down by one between July and September. In this way, at the end of the third quarter, there were 26 hedge funds in our database with ZEN positions. At the end of this article we will also compare ZEN to other stocks including United Bankshares, Inc. (NASDAQ:UBSI), GameStop Corp. (NYSE:GME), and Western Refining, Inc. (NYSE:WNR) to get a better sense of its popularity.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

Now, we’re going to take a gander at the fresh action surrounding Zendesk Inc (NYSE:ZEN).

How have hedgies been trading Zendesk Inc (NYSE:ZEN)?

Heading into the fourth quarter of 2016, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, down by 4% from the end of the second quarter. By comparison, 28 hedge funds held shares or bullish call options in ZEN heading into this year. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Alex Sacerdote’s Whale Rock Capital Management has the most valuable position in Zendesk Inc (NYSE:ZEN), worth close to $83.8 million, amounting to 5.4% of its total 13F portfolio. Coming in second is Brian Ashford-Russell and Tim Woolley’s Polar Capital holding a $28.4 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish encompass Pasco Alfaro / Richard Tumure’s Miura Global Management, Principal Global Investors’ Columbus Circle Investors, and Josh Resnick’s Jericho Capital Asset Management. We should note that Whale Rock Capital Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually cut their positions entirely. Interestingly, Dennis Puri and Oliver Keller’s Hunt Lane Capital cut the biggest stake of all the hedgies studied by Insider Monkey, comprising close to $13.5 million in stock, and Lei Zhang’s Hillhouse Capital Management was right behind this move, as the fund sold off about $4.3 million worth of shares.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Zendesk Inc (NYSE:ZEN) but similarly valued. These stocks are United Bankshares, Inc. (NASDAQ:UBSI), GameStop Corp. (NYSE:GME), Western Refining, Inc. (NYSE:WNR), and Wintrust Financial Corp (NASDAQ:WTFC). This group of stocks’ market values resemble ZEN’s market value.

As you can see these stocks had an average of 20 funds with bullish positions and the average amount invested in these stocks was $234 million, compared to $309 million in ZEN’s case. GameStop Corp. (NYSE:GME) is the most popular stock in this table. On the other hand United Bankshares, Inc. (NASDAQ:UBSI) is the least popular one with only eight funds holding shares. Zendesk Inc (NYSE:ZEN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard GameStop Corp. (NYSE:GME) might be a better candidate to consider taking a long position in.

Disclosure: none