Digital Turbine Inc (APPS): Hedge Funds Taking Some Chips Off The Table

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Digital Turbine Inc (NASDAQ:APPS) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Digital Turbine Inc (NASDAQ:APPS) was in 18 hedge funds’ portfolios at the end of June. The all time high for this statistics is 22. APPS investors should pay attention to a decrease in hedge fund sentiment of late. There were 22 hedge funds in our database with APPS holdings at the end of March. Our calculations also showed that APPS isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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 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.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to review the key hedge fund action encompassing Digital Turbine Inc (NASDAQ:APPS).

What have hedge funds been doing with Digital Turbine Inc (NASDAQ:APPS)?

Heading into the third quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in APPS a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is APPS A Good Stock To Buy?

Among these funds, Greenhaven Road Investment Management held the most valuable stake in Digital Turbine Inc (NASDAQ:APPS), which was worth $27.7 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $17.4 million worth of shares. Arrowstreet Capital, D E Shaw, and GLG Partners 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 Greenhaven Road Investment Management allocated the biggest weight to Digital Turbine Inc (NASDAQ:APPS), around 18.28% of its 13F portfolio. Trellus Management Company is also relatively very bullish on the stock, designating 7.77 percent of its 13F equity portfolio to APPS.

Due to the fact that Digital Turbine Inc (NASDAQ:APPS) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of funds who sold off their entire stakes heading into Q3. Interestingly, Michael Kaufman’s MAK Capital One cut the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $4.8 million in stock. Israel Englander’s fund, Millennium Management, also cut its stock, about $1.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds heading into Q3.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Digital Turbine Inc (NASDAQ:APPS) but similarly valued. We will take a look at New Frontier Health Corporation (NYSE:NFH), Radware Ltd. (NASDAQ:RDWR), Aimmune Therapeutics Inc (NASDAQ:AIMT), Freedom Holding Corp. (NASDAQ:FRHC), The Providence Service Corporation (NASDAQ:PRSC), Maxar Technologies Inc (NYSE:MAXR), and Independence Realty Trust Inc (NYSE:IRT). This group of stocks’ market valuations resemble APPS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NFH 15 170258 -1
RDWR 13 251573 3
AIMT 20 151391 2
FRHC 3 15935 0
PRSC 12 259513 1
MAXR 15 112490 -1
IRT 8 80792 -8
Average 12.3 148850 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.3 hedge funds with bullish positions and the average amount invested in these stocks was $149 million. That figure was $128 million in APPS’s case. Aimmune Therapeutics Inc (NASDAQ:AIMT) is the most popular stock in this table. On the other hand Freedom Holding Corp. (NASDAQ:FRHC) is the least popular one with only 3 bullish hedge fund positions. Digital Turbine Inc (NASDAQ:APPS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for APPS is 69.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on APPS as the stock returned 160.5% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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