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

How do we determine whether GMS Inc. (NYSE:GMS) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

GMS Inc. (NYSE:GMS) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds’ portfolios at the end of March. 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 Star Bulk Carriers Corp. (NASDAQ:SBLK), Navigator Holdings Ltd (NYSE:NVGS), and Quad/Graphics, Inc. (NYSE:QUAD) to gather more data points.

To the average investor there are many gauges stock market investors have at their disposal to grade stocks. A pair of the most innovative gauges are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the top fund managers can beat the broader indices by a very impressive amount (see the details here).

Phill Gross, Adage Capital Management

We’re going to take a gander at the recent hedge fund action surrounding GMS Inc. (NYSE:GMS).

Hedge fund activity in GMS Inc. (NYSE:GMS)

Heading into the second quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2018. By comparison, 21 hedge funds held shares or bullish call options in GMS a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with GMS Positions

Among these funds, Adage Capital Management held the most valuable stake in GMS Inc. (NYSE:GMS), which was worth $33.6 million at the end of the first quarter. On the second spot was Millennium Management which amassed $5.9 million worth of shares. Moreover, Clearline Capital, AQR Capital Management, and D E Shaw were also bullish on GMS Inc. (NYSE:GMS), allocating a large percentage of their portfolios to this stock.

Since GMS Inc. (NYSE:GMS) has faced a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of money managers who sold off their full holdings heading into Q3. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the largest position of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $3.4 million in stock, and Mark Coe’s Coe Capital Management was right behind this move, as the fund sold off about $0.3 million worth. These moves are interesting, 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. We will take a look at Star Bulk Carriers Corp. (NASDAQ:SBLK), Navigator Holdings Ltd (NYSE:NVGS), Quad/Graphics, Inc. (NYSE:QUAD), and Peoples Bancorp Inc. (NASDAQ:PEBO). This group of stocks’ market caps are similar to GMS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SBLK 15 305848 -4
NVGS 13 280280 1
QUAD 22 39329 2
PEBO 9 29859 1
Average 14.75 163829 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $164 million. That figure was $75 million in GMS’s case. Quad/Graphics, Inc. (NYSE:QUAD) is the most popular stock in this table. On the other hand Peoples Bancorp Inc. (NASDAQ:PEBO) is the least popular one with only 9 bullish hedge fund positions. GMS Inc. (NYSE:GMS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on GMS as the stock returned 14.9% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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