Did Hedge Funds Drop The Ball On GMS Inc. (GMS) ?

We can judge whether GMS Inc. (NYSE:GMS) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Hedge fund interest in GMS Inc. (NYSE:GMS) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Continental Building Products Inc (NYSE:CBPX), Stoke Therapeutics, Inc. (NASDAQ:STOK), and Tupperware Brands Corporation (NYSE:TUP) to gather more data points. Our calculations also showed that GMS isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a lot of metrics shareholders use to appraise stocks. A pair of the most innovative metrics are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the best picks of the best hedge fund managers can outpace the broader indices by a solid margin (see the details here).

Phill Gross, Adage Capital Management

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a peek at the new hedge fund action encompassing GMS Inc. (NYSE:GMS).

What does smart money think about GMS Inc. (NYSE:GMS)?

At Q2’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards GMS over the last 16 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with GMS Positions

More specifically, Adage Capital Management was the largest shareholder of GMS Inc. (NYSE:GMS), with a stake worth $36.9 million reported as of the end of March. Trailing Adage Capital Management was ACK Asset Management, which amassed a stake valued at $10.6 million. Renaissance Technologies, AQR Capital Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that GMS Inc. (NYSE:GMS) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of hedge funds who were dropping their positions entirely last quarter. Interestingly, Marc Majzner’s Clearline Capital dropped the largest stake of the 750 funds followed by Insider Monkey, comprising an estimated $5.4 million in stock. David Rosen’s fund, Rubric Capital Management, also dropped its stock, about $3.6 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as GMS Inc. (NYSE:GMS) but similarly valued. These stocks are Continental Building Products Inc (NYSE:CBPX), Stoke Therapeutics, Inc. (NASDAQ:STOK), Tupperware Brands Corporation (NYSE:TUP), and Carrizo Oil & Gas, Inc. (NASDAQ:CRZO). This group of stocks’ market values are closest to GMS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CBPX 17 67702 -3
STOK 18 167805 18
TUP 17 135408 -6
CRZO 10 82451 -5
Average 15.5 113342 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $113 million. That figure was $81 million in GMS’s case. Stoke Therapeutics, Inc. (NASDAQ:STOK) is the most popular stock in this table. On the other hand Carrizo Oil & Gas, Inc. (NASDAQ:CRZO) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks GMS Inc. (NYSE:GMS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on GMS as the stock returned 30.5% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Disclosure: None. This article was originally published at Insider Monkey.