Is ARC Document Solutions Inc (ARC) Going to Burn These Hedge Funds?

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Is it smart to be bullish onĀ ARC Document Solutions Inc (NYSE:ARC)?

If you were to ask many market players, hedge funds are perceived as delayed, outdated financial vehicles of a forgotten age. Although there are over 8,000 hedge funds in operation in present day, Insider Monkey looks at the bigwigs of this group, about 525 funds. It is widely held that this group has its hands on the lion’s share of all hedge funds’ total assets, and by monitoring their highest quality picks, we’ve determined a number of investment strategies that have historically outperformed the market. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have topped the S&P 500 index by 33 percentage points in 11 months (explore the details and some picks here).

Just as crucial, optimistic insider trading activity is another way to analyze the stock market universe. Obviously, there are lots of stimuli for an upper level exec to cut shares of his or her company, but only one, very clear reason why they would buy. Various academic studies have demonstrated the valuable potential of this method if shareholders know where to look (learn more here).

Thus, let’s study the recent info about ARC Document Solutions Inc (NYSE:ARC).

What does the smart money think about ARC Document Solutions Inc (NYSE:ARC)?

In preparation for the third quarter, a total of 12 of the hedge funds we track held long positions in this stock, a change of 0% from one quarter earlier. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings considerably.

ARC Document Solutions Inc (NYSE:ARC)According to our 13F database, Stadium Capital Management, managed by Alexander Medina Seaver, holds the biggest position in ARC Document Solutions Inc (NYSE:ARC). Stadium Capital Management has a $11.7 million position in the stock, comprising 2.9% of its 13F portfolio. Sitting at the No. 2 spot is Richard S. Pzena of Pzena Investment Management, with a $10.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining hedge funds with similar optimism include John W. Rogers’s Ariel Investments, D. E. Shaw’s D E Shaw and Jim Simons’s Renaissance Technologies.

Because ARC Document Solutions Inc (NYSE:ARC) has experienced declining interest from the smart money’s best and brightest, it’s easy to see that there lies a certain “tier” of money managers that slashed their positions entirely last quarter. Intriguingly, Ken Brodkowitz and Mike Vermut’s Newland Capital cut the largest investment of the 450+ funds we watch, worth about $0.6 million in stock. Ken Gray and Steve Walsh’s fund, Bryn Mawr Capital, also cut its stock, about $0.4 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Insider trading activity in ARC Document Solutions Inc (NYSE:ARC)

Insider buying is particularly usable when the company in focus has seen transactions within the past 180 days. Over the last six-month time frame, ARC Document Solutions Inc (NYSE:ARC) has seen zero unique insiders purchasing, and zero insider sales (see the details of insider trades here).

We’ll also examine the relationship between both of these indicators in other stocks similar to ARC Document Solutions Inc (NYSE:ARC). These stocks are Mitek Systems, Inc. (NASDAQ:MITK), Pervasive Software Inc. (NASDAQ:PVSW), Exa Corp (NASDAQ:EXA), FalconStor Software, Inc. (NASDAQ:FALC), and PC Tel Inc (NASDAQ:PCTI). This group of stocks are the members of the application software industry and their market caps resemble ARC’s market cap.

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