Dropbox, Inc. (DBX) Fell Out Of Favor With Hedge Funds

In this article you are going to find out whether hedge funds think Dropbox, Inc. (NASDAQ:DBX) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Dropbox, Inc. (NASDAQ:DBX) has experienced a decrease in hedge fund interest in recent months. Dropbox, Inc. (NASDAQ:DBX) was in 31 hedge funds’ portfolios at the end of March. The all time high for this statistic is 51. There were 43 hedge funds in our database with DBX positions at the end of the fourth quarter. Our calculations also showed that DBX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Chris Hansen - Valiant Capital

Christopher R. Hansen of Valiant Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium 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 we’re going to review the fresh hedge fund action regarding Dropbox, Inc. (NASDAQ:DBX).

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

At the end of March, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -28% from the previous quarter. By comparison, 44 hedge funds held shares or bullish call options in DBX a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Dropbox, Inc. (NASDAQ:DBX), which was worth $275.6 million at the end of the fourth quarter. On the second spot was Two Sigma Advisors which amassed $74.5 million worth of shares. Citadel Investment Group, Valiant Capital, and Greenhouse Funds 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 Greenhouse Funds allocated the biggest weight to Dropbox, Inc. (NASDAQ:DBX), around 5.96% of its 13F portfolio. Indaba Capital Management is also relatively very bullish on the stock, dishing out 5.32 percent of its 13F equity portfolio to DBX.

Since Dropbox, Inc. (NASDAQ:DBX) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of money managers that decided to sell off their entire stakes in the first quarter. It’s worth mentioning that Gil Simon’s SoMa Equity Partners dumped the biggest position of the “upper crust” of funds tracked by Insider Monkey, comprising close to $144.2 million in stock. Mina Faltas’s fund, Washington Harbour Partners, also dropped its stock, about $18.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 12 funds in the first quarter.

Let’s now review hedge fund activity in other stocks similar to Dropbox, Inc. (NASDAQ:DBX). We will take a look at Cable One Inc (NYSE:CABO), Camden Property Trust (NYSE:CPT), Essential Utilities Inc (NYSE:WTRG), A. O. Smith Corporation (NYSE:AOS), Apollo Global Management Inc (NYSE:APO), Lear Corporation (NYSE:LEA), and Credicorp Ltd. (NYSE:BAP). This group of stocks’ market valuations are similar to DBX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CABO 23 694559 6
CPT 24 614554 -2
WTRG 19 266338 6
AOS 24 420942 -7
APO 44 2362179 14
LEA 23 1217537 -13
BAP 22 236121 7
Average 25.6 830319 1.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.6 hedge funds with bullish positions and the average amount invested in these stocks was $830 million. That figure was $776 million in DBX’s case. Apollo Global Management Inc (NYSE:APO) is the most popular stock in this table. On the other hand Essential Utilities Inc (NYSE:WTRG) is the least popular one with only 19 bullish hedge fund positions. Dropbox, Inc. (NASDAQ:DBX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DBX is 35.2. 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 22.8% in 2021 through July 2nd and still beat the market by 6 percentage points. Hedge funds were also right about betting on DBX, though not to the same extent, as the stock returned 15.1% since Q1 (through July 2nd) and outperformed the market as well.

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