How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Pluralsight, Inc. (NASDAQ:PS) and determine whether hedge funds had an edge regarding this stock.
Is Pluralsight, Inc. (NASDAQ:PS) a buy right now? Investors who are in the know were becoming more confident. The number of long hedge fund bets went up by 9 lately. Pluralsight, Inc. (NASDAQ:PS) was in 27 hedge funds’ portfolios at the end of June. The all time high for this statistics is 30. Our calculations also showed that PS 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). There were 18 hedge funds in our database with PS holdings at the end of March.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 check out the fresh hedge fund action regarding Pluralsight, Inc. (NASDAQ:PS).
How have hedgies been trading Pluralsight, Inc. (NASDAQ:PS)?
At Q2’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in PS over the last 20 quarters. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Among these funds, Lynrock Lake held the most valuable stake in Pluralsight, Inc. (NASDAQ:PS), which was worth $107.4 million at the end of the third quarter. On the second spot was D E Shaw which amassed $21.2 million worth of shares. Tensile Capital, Akaris Global Partners, and Whetstone Capital Advisors 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 Akaris Global Partners allocated the biggest weight to Pluralsight, Inc. (NASDAQ:PS), around 12.66% of its 13F portfolio. Lynrock Lake is also relatively very bullish on the stock, earmarking 8.45 percent of its 13F equity portfolio to PS.
As aggregate interest increased, specific money managers were leading the bulls’ herd. Lynrock Lake, managed by Cynthia Paul, established the most valuable position in Pluralsight, Inc. (NASDAQ:PS). Lynrock Lake had $107.4 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also initiated a $4 million position during the quarter. The other funds with new positions in the stock are Ravee Mehta’s Nishkama Capital, Paul Tudor Jones’s Tudor Investment Corp, and David Costen Haley’s HBK Investments.
Let’s now review hedge fund activity in other stocks similar to Pluralsight, Inc. (NASDAQ:PS). These stocks are Papa John’s International, Inc. (NASDAQ:PZZA), Sanderson Farms, Inc. (NASDAQ:SAFM), Rapid7 Inc (NASDAQ:RPD), Ping Identity Holding Corp. (NYSE:PING), EPR Properties (NYSE:EPR), Stitch Fix, Inc. (NASDAQ:SFIX), and Denali Therapeutics Inc. (NASDAQ:DNLI). This group of stocks’ market caps are closest to PS’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.4 hedge funds with bullish positions and the average amount invested in these stocks was $199 million. That figure was $234 million in PS’s case. Papa John’s International, Inc. (NASDAQ:PZZA) is the most popular stock in this table. On the other hand Rapid7 Inc (NASDAQ:RPD) is the least popular one with only 14 bullish hedge fund positions. Pluralsight, Inc. (NASDAQ:PS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PS is 69.5. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately PS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PS were disappointed as the stock returned -5.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.