Do Hedge Funds Love Paycom Software Inc (PAYC)?

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 second 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 6 years and analyze what the smart money thinks of Paycom Software Inc (NYSE:PAYC) based on that data.

Paycom Software Inc (NYSE:PAYC) investors should be aware of a decrease in hedge fund interest of late. Paycom Software Inc (NYSE:PAYC) was in 39 hedge funds’ portfolios at the end of June. The all time high for this statistic is 46. There were 46 hedge funds in our database with PAYC positions at the end of the first quarter. Our calculations also showed that PAYC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the eyes of most investors, hedge funds are perceived as unimportant, outdated investment vehicles of years past. While there are greater than 8000 funds with their doors open at present, Our experts choose to focus on the elite of this club, about 850 funds. These money managers administer most of the hedge fund industry’s total capital, and by monitoring their highest performing investments, Insider Monkey has come up with a number of investment strategies that have historically outrun Mr. Market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let’s view the latest hedge fund action encompassing Paycom Software Inc (NYSE:PAYC).

Do Hedge Funds Think PAYC Is A Good Stock To Buy Now?

At second quarter’s end, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the first quarter of 2020. By comparison, 36 hedge funds held shares or bullish call options in PAYC a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

The largest stake in Paycom Software Inc (NYSE:PAYC) was held by Alyeska Investment Group, which reported holding $158.9 million worth of stock at the end of June. It was followed by Echo Street Capital Management with a $154 million position. Other investors bullish on the company included Cat Rock Capital, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Cat Rock Capital allocated the biggest weight to Paycom Software Inc (NYSE:PAYC), around 9.72% of its 13F portfolio. Mondrian Capital is also relatively very bullish on the stock, dishing out 4.23 percent of its 13F equity portfolio to PAYC.

Because Paycom Software Inc (NYSE:PAYC) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of hedge funds who were dropping their full holdings in the second quarter. It’s worth mentioning that Amish Mehta’s SQN Investors dropped the biggest stake of all the hedgies tracked by Insider Monkey, totaling about $68.1 million in stock, and Suraj Parkash Chopra’s Force Hill Capital Management was right behind this move, as the fund sold off about $15 million worth. These transactions are important to note, as total hedge fund interest fell by 7 funds in the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Paycom Software Inc (NYSE:PAYC) but similarly valued. These stocks are Western Digital Corporation (NASDAQ:WDC), Royal Caribbean Cruises Ltd. (NYSE:RCL), Dover Corporation (NYSE:DOV), Caesars Entertainment Inc. (NASDAQ:CZR), Xylem Inc (NYSE:XYL), Fox Corporation (NASDAQ:FOXA), and PPL Corporation (NYSE:PPL). This group of stocks’ market valuations match PAYC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WDC 57 2114351 -1
RCL 42 596573 0
DOV 29 700034 3
CZR 73 1839888 -3
XYL 23 931677 0
FOXA 35 441270 -3
PPL 23 417630 -2
Average 40.3 1005918 -0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.3 hedge funds with bullish positions and the average amount invested in these stocks was $1006 million. That figure was $1150 million in PAYC’s case. Caesars Entertainment Inc. (NASDAQ:CZR) is the most popular stock in this table. On the other hand Xylem Inc (NYSE:XYL) is the least popular one with only 23 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 overall hedge fund sentiment score for PAYC is 39.4. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. A small number of hedge funds were also right about betting on PAYC as the stock returned 38% since the end of the second quarter (through 10/11) and outperformed the market by an even larger margin.

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