Did Hedge Funds Make The Right Call On Inspire Medical Systems, Inc. (INSP) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Inspire Medical Systems, Inc. (NYSE:INSP) based on that data and determine whether they were really smart about the stock.

Is Inspire Medical Systems, Inc. (NYSE:INSP) a buy right now? The smart money was in an optimistic mood. The number of long hedge fund positions increased by 4 lately. Our calculations also showed that INSP 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). INSP was in 25 hedge funds’ portfolios at the end of the first quarter of 2020. There were 21 hedge funds in our database with INSP positions at the end of the previous quarter.

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

In the financial world there are several gauges market participants use to appraise stocks. Two of the most innovative gauges are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the best picks of the elite investment managers can outclass their index-focused peers by a very impressive margin (see the details here).

Ricky Sandler of Eminence Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind we’re going to take a gander at the new hedge fund action surrounding Inspire Medical Systems, Inc. (NYSE:INSP).

How have hedgies been trading Inspire Medical Systems, Inc. (NYSE:INSP)?

At Q1’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in INSP a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Is INSP A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, 12 West Capital Management, managed by Joel Ramin, holds the most valuable position in Inspire Medical Systems, Inc. (NYSE:INSP). 12 West Capital Management has a $48.1 million position in the stock, comprising 2.9% of its 13F portfolio. The second most bullish fund manager is Principal Global Investors of Columbus Circle Investors, with a $37.2 million position; the fund has 2% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism comprise Pasco Alfaro / Richard Tumure’s Miura Global Management, Richard Driehaus’s Driehaus Capital and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Miura Global Management allocated the biggest weight to Inspire Medical Systems, Inc. (NYSE:INSP), around 8.27% of its 13F portfolio. Pura Vida Investments is also relatively very bullish on the stock, dishing out 5.61 percent of its 13F equity portfolio to INSP.

As aggregate interest increased, specific money managers have been driving this bullishness. Miura Global Management, managed by Pasco Alfaro / Richard Tumure, created the most outsized position in Inspire Medical Systems, Inc. (NYSE:INSP). Miura Global Management had $31.9 million invested in the company at the end of the quarter. Ricky Sandler’s Eminence Capital also initiated a $22.4 million position during the quarter. The other funds with brand new INSP positions are Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management, Israel Englander’s Millennium Management, and John Osterweis’s Osterweis Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Inspire Medical Systems, Inc. (NYSE:INSP) but similarly valued. We will take a look at AeroVironment, Inc. (NASDAQ:AVAV), Theravance Biopharma Inc (NASDAQ:TBPH), TransAlta Corporation (NYSE:TAC), and Akcea Therapeutics, Inc. (NASDAQ:AKCA). This group of stocks’ market valuations resemble INSP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AVAV 10 51290 -3
TBPH 14 335681 1
TAC 15 55063 5
AKCA 11 11776 1
Average 12.5 113453 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $113 million. That figure was $335 million in INSP’s case. TransAlta Corporation (NYSE:TAC) is the most popular stock in this table. On the other hand AeroVironment, Inc. (NASDAQ:AVAV) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Inspire Medical Systems, Inc. (NYSE:INSP) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on INSP as the stock returned 44.4% in Q2 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.

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