Should You Buy Acadia Healthcare Company Inc (ACHC)?

The market has been volatile due to elections and the potential of another Federal Reserve rate increase. Small cap stocks have been on a tear, as the Russell 2000 ETF (IWM) has outperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of June. SEC filings and hedge fund investor letters indicate that the smart money seems to be getting back in stocks, and the funds’ movements is one of the reasons why small-cap stocks are red hot. In this article, we analyze what the smart money thinks of Acadia Healthcare Company Inc (NASDAQ:ACHC) and find out how it is affected by hedge funds’ moves.

Acadia Healthcare Company Inc (NASDAQ:ACHC) was in 22 hedge funds’ portfolios at the end of September. ACHC has seen an increase in hedge fund sentiment lately. There were 19 hedge funds in our database with ACHC holdings at the end of the previous quarter. At the end of this article we will also compare ACHC to other stocks including National Fuel Gas Co. (NYSE:NFG), Dolby Laboratories, Inc. (NYSE:DLB), and Allison Transmission Holdings Inc (NYSE:ALSN) to get a better sense of its popularity.

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How are hedge funds trading Acadia Healthcare Company Inc (NASDAQ:ACHC)?

At Q3’s end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a 16% rise from the second quarter of 2016, which represented a rebound from the 21% decline in smart money ownership in Q2. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Pennant Capital Management, managed by Alan Fournier, holds the largest position in Acadia Healthcare Company Inc (NASDAQ:ACHC). Pennant Capital Management has a $99.7 million position in the stock, comprising 3.5% of its 13F portfolio. The second largest stake is held by Citadel Investment Group, led by Ken Griffin, holding a $52 million position. Other members of the smart money that hold long positions include Israel Englander’s Millennium Management, Kris Jenner, Gordon Bussard, and Graham McPhail’s Rock Springs Capital Management, and Arthur B Cohen and Joseph Healey’s Healthcor Management LP.

As aggregate interest increased, specific money managers have been driving this bullishness. Sabby Capital, managed by Hal Mintz, created the biggest call position in Acadia Healthcare Company Inc (NASDAQ:ACHC). Sabby Capital had $24.8 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $17 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Glenn Russell Dubin’s Highbridge Capital Management, and Matthew Tewksbury’s Stevens Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Acadia Healthcare Company Inc (NASDAQ:ACHC) but similarly valued. These stocks are National Fuel Gas Co. (NYSE:NFG), Dolby Laboratories, Inc. (NYSE:DLB), Allison Transmission Holdings Inc (NYSE:ALSN), and Grupo Aeroportuario del Sureste (ADR) (NYSE:ASR). All of these stocks’ market caps match ACHC’s market cap.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $633 million. That figure was $449 million in ACHC’s case. Allison Transmission Holdings Inc (NYSE:ALSN) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Sureste (ADR) (NYSE:ASR) is the least popular one with only 9 bullish hedge fund positions. Acadia Healthcare Company Inc (NASDAQ:ACHC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ALSN might be a better candidate to consider for a long position.

Disclosure: None