Is Cornerstone OnDemand, Inc. (CSOD) A Good Stock To Buy?

Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those successful funds in these small-cap stocks. In the following paragraphs, we analyze Cornerstone OnDemand, Inc. (NASDAQ:CSOD) from the perspective of those successful funds.

Cornerstone OnDemand, Inc. (NASDAQ:CSOD) shareholders have witnessed an increase in hedge fund interest of late. There were 29 hedge funds in our database with CSOD positions at the end of the 2016 third quarter. At the end of this article we will also compare CSOD to other stocks including Performance Food Group Co (NYSE:PFGC), ENSCO PLC (NYSE:ESV), and Prestige Brands Holdings, Inc. (NYSE:PBH) to get a better sense of its popularity.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

With all of this in mind, we’re going to take a gander at the key action surrounding Cornerstone OnDemand, Inc. (NASDAQ:CSOD).

Hedge fund activity in Cornerstone OnDemand, Inc. (NASDAQ:CSOD)

At the end of the third quarter, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, up 7% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in CSOD heading into this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Tensile Capital, led by Douglas Dossey and Arthur Young, holds the number one position in Cornerstone OnDemand, Inc. (NASDAQ:CSOD). According to regulatory filings, the fund has a $67.7 million position in the stock, comprising 15.3% of its 13F portfolio. The second largest stake is held by RGM Capital, led by Robert G. Moses, whith a $58.7 million position; the fund has 6.6% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish encompass Glenn J. Krevlin’s Glenhill Advisors, Keith Meister’s Corvex Capital and Ken Griffin’s Citadel Investment Group. We should note that two of these hedge funds (Tensile Capital and RGM Capital) are 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.

As one would reasonably expect, specific money managers have jumped into Cornerstone OnDemand, Inc. (NASDAQ:CSOD) headfirst. Corvex Capital initiated the most outsized position in Cornerstone OnDemand. According to its latest 13F filing, the fund had $34.6 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson’s Adage Capital Management also made a $8.7 million investment in the stock during the quarter. The other funds with brand new CSOD positions are Dmitry Balyasny’s Balyasny Asset Management, Benjamin A. Smith’s Laurion Capital Management, and Sheetal Duggal’s Thrax Management.

Let’s now review hedge fund activity in other stocks similar to Cornerstone OnDemand, Inc. (NASDAQ:CSOD). These stocks are Performance Food Group Co (NYSE:PFGC), ENSCO PLC (NYSE:ESV), Prestige Brands Holdings, Inc. (NYSE:PBH), and InterXion Holding NV (NYSE:INXN). This group of stocks’ market values match CSOD’s market value.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $429 million. That figure was $400 million in CSOD’s case. InterXion Holding NV (NYSE:INXN) is the most popular stock in this table. On the other hand Performance Food Group Co (NYSE:PFGC) is the least popular one with only 14 bullish hedge fund positions. Cornerstone OnDemand, Inc. (NASDAQ:CSOD) 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 INXN might be a better candidate to consider taking a long position in.

Disclosure: none.