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Did Hedge Funds Make The Right Call On Paycom Software Inc (PAYC) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtPaycom Software Inc (NYSE:PAYC) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Paycom Software Inc (NYSE:PAYC) undervalued? The best stock pickers were turning bullish. The number of long hedge fund bets inched up by 3 in recent months. Our calculations also showed that PAYC 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.

In today’s marketplace there are a lot of formulas market participants can use to assess publicly traded companies. A couple of the most useful formulas are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the best picks of the elite hedge fund managers can outperform the broader indices by a significant amount (see the details here).

MOORE GLOBAL INVESTMENTS

Louis Bacon Moore of Moore Capital

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. Now we’re going to view the new hedge fund action surrounding Paycom Software Inc (NYSE:PAYC).

Hedge fund activity in Paycom Software Inc (NYSE:PAYC)

At the end of the first quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PAYC over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PAYC A Good Stock To Buy?

More specifically, Citadel Investment Group was the largest shareholder of Paycom Software Inc (NYSE:PAYC), with a stake worth $57.2 million reported as of the end of September. Trailing Citadel Investment Group was Fisher Asset Management, which amassed a stake valued at $51.6 million. Renaissance Technologies, Two Sigma Advisors, and Echo Street Capital Management 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 Diker Management allocated the biggest weight to Paycom Software Inc (NYSE:PAYC), around 6.55% of its 13F portfolio. Waratah Capital Advisors is also relatively very bullish on the stock, dishing out 3.23 percent of its 13F equity portfolio to PAYC.

As industrywide interest jumped, specific money managers have been driving this bullishness. Renaissance Technologies, initiated the biggest position in Paycom Software Inc (NYSE:PAYC). Renaissance Technologies had $27.3 million invested in the company at the end of the quarter. Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors also made a $18.2 million investment in the stock during the quarter. The other funds with brand new PAYC positions are Mark N. Diker’s Diker Management, Phill Gross and Robert Atchinson’s Adage Capital Management, and Frederick DiSanto’s Ancora Advisors.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Paycom Software Inc (NYSE:PAYC) but similarly valued. These stocks are Steris Plc (NYSE:STE), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), Rollins, Inc. (NYSE:ROL), and Alliant Energy Corporation (NYSE:LNT). This group of stocks’ market valuations resemble PAYC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STE 35 554570 2
CRWD 65 1301564 17
ROL 25 447589 -9
LNT 30 602098 2
Average 38.75 726455 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.75 hedge funds with bullish positions and the average amount invested in these stocks was $726 million. That figure was $239 million in PAYC’s case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand Rollins, Inc. (NYSE:ROL) is the least popular one with only 25 bullish hedge fund positions. Paycom Software Inc (NYSE:PAYC) is not the least popular stock in this group but hedge fund interest is still below average. 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 still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on PAYC as the stock returned 53.3% during the second quarter and outperformed the market by an even larger margin.

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