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Did Hedge Funds Drop The Ball On Ooma Inc (OOMA) ?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Ooma Inc (NYSE:OOMA).

Ooma Inc (NYSE:OOMA) has seen a decrease in enthusiasm from smart money of late. OOMA was in 14 hedge funds’ portfolios at the end of September. There were 15 hedge funds in our database with OOMA holdings at the end of the previous quarter. Our calculations also showed that OOMA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 multitude of formulas stock market investors use to appraise stocks. A couple of the less utilized formulas are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the best hedge fund managers can beat the market by a significant margin (see the details here).

Julian Robertson of Tiger Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the key hedge fund action encompassing Ooma Inc (NYSE:OOMA).

Hedge fund activity in Ooma Inc (NYSE:OOMA)

Heading into the fourth quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in OOMA a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, Woodson Capital Management held the most valuable stake in Ooma Inc (NYSE:OOMA), which was worth $16.4 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $10.1 million worth of shares. Tiger Management, Headlands Capital, and Royce & Associates were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Headlands Capital allocated the biggest weight to Ooma Inc (NYSE:OOMA), around 5.11% of its 13F portfolio. Tiger Management is also relatively very bullish on the stock, designating 3.42 percent of its 13F equity portfolio to OOMA.

Because Ooma Inc (NYSE:OOMA) has experienced falling interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedge funds who sold off their full holdings in the third quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the biggest position of all the hedgies followed by Insider Monkey, comprising about $0.4 million in stock. Cliff Asness’s fund, AQR Capital Management, also sold off its stock, about $0.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 1 funds in the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Ooma Inc (NYSE:OOMA) but similarly valued. These stocks are GigCapital2, Inc. (NYSE:GIX), Hurco Companies, Inc. (NASDAQ:HURC), Citi Trends, Inc. (NASDAQ:CTRN), and The Container Store Group, Inc. (NYSE:TCS). This group of stocks’ market values resemble OOMA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GIX 8 19892 -2
HURC 6 36498 -1
CTRN 12 30259 -1
TCS 16 11667 -2
Average 10.5 24579 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $56 million in OOMA’s case. The Container Store Group, Inc. (NYSE:TCS) is the most popular stock in this table. On the other hand Hurco Companies, Inc. (NASDAQ:HURC) is the least popular one with only 6 bullish hedge fund positions. Ooma Inc (NYSE:OOMA) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on OOMA as the stock returned 33.5% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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