Hedge Funds Are Crazy About Phreesia, Inc. (PHR)

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Phreesia, Inc. (NYSE:PHR).

Phreesia, Inc. (NYSE:PHR) was in 27 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic was previously 26. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. PHR has seen an increase in activity from the world’s largest hedge funds recently. There were 26 hedge funds in our database with PHR holdings at the end of December. Our calculations also showed that PHR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Kris Jenner - Rock Springs Capital

Kris Jenner of Rock Springs Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. 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. Keeping this in mind we’re going to check out the fresh hedge fund action encompassing Phreesia, Inc. (NYSE:PHR).

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

At Q1’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in PHR over the last 23 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

More specifically, ARK Investment Management was the largest shareholder of Phreesia, Inc. (NYSE:PHR), with a stake worth $66.5 million reported as of the end of March. Trailing ARK Investment Management was Rock Springs Capital Management, which amassed a stake valued at $44.3 million. Renaissance Technologies, Citadel Investment Group, and Driehaus Capital 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 Stony Point Capital allocated the biggest weight to Phreesia, Inc. (NYSE:PHR), around 1.95% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, earmarking 0.97 percent of its 13F equity portfolio to PHR.

Now, key money managers were breaking ground themselves. Stony Point Capital, managed by Richard Walters II, created the biggest position in Phreesia, Inc. (NYSE:PHR). Stony Point Capital had $6.1 million invested in the company at the end of the quarter. Henrik Rhenman’s Rhenman & Partners Asset Management also made a $3.1 million investment in the stock during the quarter. The following funds were also among the new PHR investors: Gavin Saitowitz and Cisco J. del Valle’s Prelude Capital (previously Springbok Capital), Michael Gelband’s ExodusPoint Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Phreesia, Inc. (NYSE:PHR) but similarly valued. We will take a look at PQ Group Holdings Inc. (NYSE:PQG), Global Blue Group Holding AG (NYSE:GB), Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY), Xperi Holding Corporation (NASDAQ:XPER), South Jersey Industries Inc (NYSE:SJI), Nuvation Bio Inc. (NYSE:NUVB), and Sally Beauty Holdings, Inc. (NYSE:SBH). All of these stocks’ market caps are similar to PHR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PQG 8 32900 -1
GB 16 1810814 1
PLAY 24 540055 3
XPER 21 155873 -1
SJI 32 482342 20
NUVB 30 543947 30
SBH 19 127433 -4
Average 21.4 527623 6.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $528 million. That figure was $213 million in PHR’s case. South Jersey Industries Inc (NYSE:SJI) is the most popular stock in this table. On the other hand PQ Group Holdings Inc. (NYSE:PQG) is the least popular one with only 8 bullish hedge fund positions. Phreesia, Inc. (NYSE:PHR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PHR is 75.6. 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 24% in 2021 through July 9th and still beat the market by 6.7 percentage points. Hedge funds were also right about betting on PHR as the stock returned 25.3% since the end of Q1 (through 7/9) 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.