Hedge Funds Aren’t Crazy About GDS Holdings Limited (GDS) Anymore

In this article we are going to use hedge fund sentiment as a tool and determine whether GDS Holdings Limited (NASDAQ:GDS) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

GDS Holdings Limited (NASDAQ:GDS) was in 24 hedge funds’ portfolios at the end of September. The all time high for this statistic is 47. GDS investors should pay attention to a decrease in activity from the world’s largest hedge funds recently. There were 38 hedge funds in our database with GDS holdings at the end of June. Our calculations also showed that GDS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Now we’re going to take a look at the new hedge fund action surrounding GDS Holdings Limited (NASDAQ:GDS).

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

At third quarter’s end, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -37% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GDS over the last 25 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in GDS Holdings Limited (NASDAQ:GDS) was held by 12 West Capital Management, which reported holding $463.5 million worth of stock at the end of September. It was followed by Tiger Global Management LLC with a $145.6 million position. Other investors bullish on the company included York Capital Management, Indus Capital, and Cartica Management. In terms of the portfolio weights assigned to each position 12 West Capital Management allocated the biggest weight to GDS Holdings Limited (NASDAQ:GDS), around 21.14% of its 13F portfolio. York Capital Management is also relatively very bullish on the stock, setting aside 10.52 percent of its 13F equity portfolio to GDS.

Judging by the fact that GDS Holdings Limited (NASDAQ:GDS) has faced declining sentiment from the smart money, we can see that there were a few money managers that decided to sell off their entire stakes by the end of the third quarter. At the top of the heap, David Thomas’s Atalan Capital said goodbye to the largest stake of the 750 funds monitored by Insider Monkey, comprising close to $75.7 million in stock. John Khoury’s fund, Long Pond Capital, also said goodbye to its stock, about $69.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 14 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as GDS Holdings Limited (NASDAQ:GDS) but similarly valued. These stocks are Cemex SAB de CV (NYSE:CX), Ozon Holdings PLC (NASDAQ:OZON), Regal Beloit Corporation (NYSE:RBC), Acceleron Pharma Inc (NASDAQ:XLRN), Global-E Online Ltd. (NASDAQ:GLBE), Natera Inc (NASDAQ:NTRA), and The Toro Company (NYSE:TTC). This group of stocks’ market caps resemble GDS’s market cap.

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As you can see these stocks had an average of 31.6 hedge funds with bullish positions and the average amount invested in these stocks was $1069 million. That figure was $1018 million in GDS’s case. Acceleron Pharma Inc (NASDAQ:XLRN) is the most popular stock in this table. On the other hand Ozon Holdings PLC (NASDAQ:OZON) is the least popular one with only 13 bullish hedge fund positions. GDS Holdings Limited (NASDAQ:GDS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GDS is 18.5. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 31.1% in 2021 through December 9th and surpassed the market again by 5.1 percentage points. Unfortunately GDS wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); GDS investors were disappointed as the stock returned -4.9% since the end of September (through 12/9) 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 in 2021.

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

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