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Did Hedge Funds Make The Right Call On Grand Canyon Education Inc (LOPE) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Grand Canyon Education Inc (NASDAQ:LOPE) and determine whether hedge funds skillfully traded this stock.

Is Grand Canyon Education Inc (NASDAQ:LOPE) worth your attention right now? The smart money was buying. The number of bullish hedge fund bets increased by 8 recently. Our calculations also showed that LOPE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a peek at the latest hedge fund action regarding Grand Canyon Education Inc (NASDAQ:LOPE).

What does smart money think about Grand Canyon Education Inc (NASDAQ:LOPE)?

At Q1’s end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 40% from the fourth quarter of 2019. On the other hand, there were a total of 26 hedge funds with a bullish position in LOPE a year ago. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Among these funds, Park West Asset Management held the most valuable stake in Grand Canyon Education Inc (NASDAQ:LOPE), which was worth $60.2 million at the end of the third quarter. On the second spot was Stadium Capital Management which amassed $29.2 million worth of shares. Sabrepoint Capital, Millennium Management, and No Street Capital 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 Stadium Capital Management allocated the biggest weight to Grand Canyon Education Inc (NASDAQ:LOPE), around 16.53% of its 13F portfolio. Sabrepoint Capital is also relatively very bullish on the stock, dishing out 7.11 percent of its 13F equity portfolio to LOPE.

As industrywide interest jumped, some big names were leading the bulls’ herd. Park West Asset Management, managed by Peter S. Park, initiated the biggest position in Grand Canyon Education Inc (NASDAQ:LOPE). Park West Asset Management had $60.2 million invested in the company at the end of the quarter. Alexander Medina Seaver’s Stadium Capital Management also made a $29.2 million investment in the stock during the quarter. The other funds with brand new LOPE positions are Jeff Osher’s No Street Capital, Renaissance Technologies, and John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s now take a look at hedge fund activity in other stocks similar to Grand Canyon Education Inc (NASDAQ:LOPE). We will take a look at ServiceMaster Global Holdings Inc (NYSE:SERV), J2 Global Inc (NASDAQ:JCOM), Inphi Corporation (NYSE:IPHI), and Under Armour Inc (NYSE:UA). This group of stocks’ market valuations are closest to LOPE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SERV 31 593890 -11
JCOM 21 219272 -2
IPHI 36 482361 5
UA 37 660755 5
Average 31.25 489070 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $489 million. That figure was $186 million in LOPE’s case. Under Armour Inc (NYSE:UA) is the most popular stock in this table. On the other hand J2 Global Inc (NASDAQ:JCOM) is the least popular one with only 21 bullish hedge fund positions. Grand Canyon Education Inc (NASDAQ:LOPE) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately LOPE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); LOPE investors were disappointed as the stock returned 18.7% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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