Hedge Funds Are Selling Paylocity Holding Corp (PCTY)

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 5 years and analyze what the smart money thinks of Paylocity Holding Corp (NASDAQ:PCTY) based on that data and determine whether they were really smart about the stock.

Paylocity Holding Corp (NASDAQ:PCTY) was in 24 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. PCTY investors should be aware of a decrease in hedge fund sentiment lately. There were 33 hedge funds in our database with PCTY positions at the end of the first quarter. Our calculations also showed that PCTY 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).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are dozens of metrics shareholders use to size up publicly traded companies. Two of the most underrated metrics are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the elite investment managers can outclass the S&P 500 by a healthy amount (see the details here).

David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

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. Keeping this in mind we’re going to take a look at the latest hedge fund action regarding Paylocity Holding Corp (NASDAQ:PCTY).

What have hedge funds been doing with Paylocity Holding Corp (NASDAQ:PCTY)?

At second quarter’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in PCTY a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Is PCTY A Good Stock To Buy?

The largest stake in Paylocity Holding Corp (NASDAQ:PCTY) was held by Adams Street Partners, which reported holding $166.1 million worth of stock at the end of September. It was followed by Alkeon Capital Management with a $102 million position. Other investors bullish on the company included Zevenbergen Capital Investments, Two Sigma Advisors, and Echo Street Capital Management. In terms of the portfolio weights assigned to each position Adams Street Partners allocated the biggest weight to Paylocity Holding Corp (NASDAQ:PCTY), around 34.35% of its 13F portfolio. Lee Capital Management is also relatively very bullish on the stock, dishing out 1.8 percent of its 13F equity portfolio to PCTY.

Because Paylocity Holding Corp (NASDAQ:PCTY) has witnessed falling interest from hedge fund managers, logic holds that there exists a select few fund managers who were dropping their positions entirely by the end of the second quarter. At the top of the heap, Mark N. Diker’s Diker Management cut the largest position of the 750 funds followed by Insider Monkey, worth about $11.7 million in stock. Frederick DiSanto’s fund, Ancora Advisors, also sold off its stock, about $4.5 million worth. These moves are interesting, as aggregate hedge fund interest fell by 9 funds by the end of the second quarter.

Let’s go over hedge fund activity in other stocks similar to Paylocity Holding Corp (NASDAQ:PCTY). We will take a look at Regency Centers Corp (NYSE:REG), Generac Holdings Inc. (NYSE:GNRC), Elastic N.V. (NYSE:ESTC), Tenaris S.A. (NYSE:TS), Weibo Corp (NASDAQ:WB), Host Hotels and Resorts Inc (NYSE:HST), and A. O. Smith Corporation (NYSE:AOS). This group of stocks’ market values are similar to PCTY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
REG 15 124124 -3
GNRC 36 473108 7
ESTC 43 1385856 10
TS 12 204534 -3
WB 14 92970 4
HST 29 221044 5
AOS 35 410037 10
Average 26.3 415953 4.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.3 hedge funds with bullish positions and the average amount invested in these stocks was $416 million. That figure was $477 million in PCTY’s case. Elastic N.V. (NYSE:ESTC) is the most popular stock in this table. On the other hand Tenaris S.A. (NYSE:TS) is the least popular one with only 12 bullish hedge fund positions. Paylocity Holding Corp (NASDAQ:PCTY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PCTY is 37.2. 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. This is a slightly negative signal and 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 surpassed the market by 17.7 percentage points. Unfortunately PCTY wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PCTY investors were disappointed as the stock returned 4% since Q2 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 most of these stocks already outperformed the market in 2020.

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