Did Hedge Funds Drop The Ball On nLIGHT, Inc. (LASR)?

Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Is nLIGHT, Inc. (NASDAQ:LASR) a bargain? Money managers are turning less bullish. The number of bullish hedge fund bets dropped by 1 in recent months. Our calculations also showed that LASR isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Dmitry Balyasny

Let’s go over the key hedge fund action encompassing nLIGHT, Inc. (NASDAQ:LASR).

Hedge fund activity in nLIGHT, Inc. (NASDAQ:LASR)

At the end of the fourth quarter, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in LASR over the last 14 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).


More specifically, Royce & Associates was the largest shareholder of nLIGHT, Inc. (NASDAQ:LASR), with a stake worth $25.5 million reported as of the end of December. Trailing Royce & Associates was HBK Investments, which amassed a stake valued at $1.2 million. Balyasny Asset Management and Driehaus Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that nLIGHT, Inc. (NASDAQ:LASR) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there were a few money managers that slashed their positions entirely in the third quarter. At the top of the heap, Anand Parekh’s Alyeska Investment Group cut the biggest investment of the 700 funds monitored by Insider Monkey, worth close to $1 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund said goodbye to about $0.6 million worth. These moves are important to note, as total hedge fund interest fell by 1 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to nLIGHT, Inc. (NASDAQ:LASR). We will take a look at Photronics, Inc. (NASDAQ:PLAB), Resolute Energy Corp (NYSE:REN), Ameresco Inc (NYSE:AMRC), and Weidai Ltd. (NYSE:WEI). This group of stocks’ market caps match LASR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PLAB 16 70442 2
REN 11 148750 1
AMRC 7 23236 -3
WEI 1 429 1
Average 8.75 60714 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $61 million. That figure was $27 million in LASR’s case. Photronics, Inc. (NASDAQ:PLAB) is the most popular stock in this table. On the other hand Weidai Ltd. (NYSE:WEI) is the least popular one with only 1 bullish hedge fund positions. nLIGHT, Inc. (NASDAQ:LASR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on LASR as the stock returned 39.5% and outperformed the market by an even larger margin.

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