Hedge Funds Are Crazy About KalVista Pharmaceuticals, Inc. (KALV)

In this article we will take a look at whether hedge funds think KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) a bargain? Investors who are in the know were buying. The number of bullish hedge fund positions advanced by 8 lately. KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) was in 23 hedge funds’ portfolios at the end of March. The all time high for this statistic was previously 19. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that KALV isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 115 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.

Tim Lynch of Stonepine Capital

Timothy P. Lynch of Stonepine Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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. With all of this in mind we’re going to analyze the recent hedge fund action surrounding KalVista Pharmaceuticals, Inc. (NASDAQ:KALV).

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

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 53% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in KALV over the last 23 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Albert Cha and Frank Kung’s Vivo Capital has the biggest position in KalVista Pharmaceuticals, Inc. (NASDAQ:KALV), worth close to $47.9 million, accounting for 1.7% of its total 13F portfolio. The second most bullish fund manager is Deerfield Management, led by James E. Flynn, holding a $26.2 million position; 0.6% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions include Brian Ashford-Russell and Tim Woolley’s Polar Capital, Aaron Cowen’s Suvretta Capital Management and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Stonepine Capital allocated the biggest weight to KalVista Pharmaceuticals, Inc. (NASDAQ:KALV), around 5.86% of its 13F portfolio. Commodore Capital is also relatively very bullish on the stock, dishing out 2.17 percent of its 13F equity portfolio to KALV.

Consequently, key hedge funds were breaking ground themselves. Deerfield Management, managed by James E. Flynn, assembled the largest position in KalVista Pharmaceuticals, Inc. (NASDAQ:KALV). Deerfield Management had $26.2 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley’s Polar Capital also made a $25.9 million investment in the stock during the quarter. The other funds with brand new KALV positions are Bihua Chen’s Cormorant Asset Management, Timothy P. Lynch’s Stonepine Capital, and Peter Kolchinsky’s RA Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) but similarly valued. These stocks are ChromaDex Corporation (NASDAQ:CDXC), Viomi Technology Co., Ltd (NASDAQ:VIOT), Haverty Furniture Companies, Inc. (NYSE:HVT), Mitek Systems, Inc. (NASDAQ:MITK), Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB), Vapotherm, Inc. (NYSE:VAPO), and Midland States Bancorp, Inc. (NASDAQ:MSBI). All of these stocks’ market caps are similar to KALV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CDXC 7 11954 0
VIOT 6 5779 1
HVT 13 75604 -2
MITK 15 75980 -2
RRGB 9 18687 0
VAPO 13 140684 -2
MSBI 7 9312 -2
Average 10 48286 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $226 million in KALV’s case. Mitek Systems, Inc. (NASDAQ:MITK) is the most popular stock in this table. On the other hand Viomi Technology Co., Ltd (NASDAQ:VIOT) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks KalVista Pharmaceuticals, Inc. (NASDAQ:KALV) is more popular among hedge funds. Our overall hedge fund sentiment score for KALV is 90. 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 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. Unfortunately KALV wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on KALV were disappointed as the stock returned -14.7% since the end of the first quarter (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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