Hedge Funds Have Never Been Less Bullish On Establishment Labs Holdings (ESTA)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Establishment Labs Holdings Inc. (NASDAQ:ESTA).

Establishment Labs Holdings Inc. (NASDAQ:ESTA) investors should pay attention to a decrease in hedge fund sentiment recently. ESTA was in 7 hedge funds’ portfolios at the end of the second quarter of 2019. There were 9 hedge funds in our database with ESTA positions at the end of the previous quarter. Our calculations also showed that ESTA isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the fresh hedge fund action regarding Establishment Labs Holdings Inc. (NASDAQ:ESTA).

How have hedgies been trading Establishment Labs Holdings Inc. (NASDAQ:ESTA)?

At Q2’s end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in ESTA over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).


Among these funds, Perceptive Advisors held the most valuable stake in Establishment Labs Holdings Inc. (NASDAQ:ESTA), which was worth $27.7 million at the end of the second quarter. On the second spot was Nantahala Capital Management which amassed $17.4 million worth of shares. Moreover, Pura Vida Investments, Millennium Management, and Magnetar Capital were also bullish on Establishment Labs Holdings Inc. (NASDAQ:ESTA), allocating a large percentage of their portfolios to this stock.

Because Establishment Labs Holdings Inc. (NASDAQ:ESTA) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there were a few money managers who were dropping their entire stakes heading into Q3. Interestingly, Behzad Aghazadeh’s venBio Select Advisor dumped the biggest position of the “upper crust” of funds watched by Insider Monkey, totaling close to $11.4 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund sold off about $7.7 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 2 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Establishment Labs Holdings Inc. (NASDAQ:ESTA) but similarly valued. These stocks are PennantPark Investment Corp. (NASDAQ:PNNT), NRC Group Holdings Corp. (NYSE:NRCG), America First Multifamily Investors, L.P. (NASDAQ:ATAX), and Briggs & Stratton Corporation (NYSE:BGG). This group of stocks’ market valuations are similar to ESTA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PNNT 9 16479 0
NRCG 8 10470 3
ATAX 3 3357 1
BGG 11 19671 4
Average 7.75 12494 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $59 million in ESTA’s case. Briggs & Stratton Corporation (NYSE:BGG) is the most popular stock in this table. On the other hand America First Multifamily Investors, L.P. (NASDAQ:ATAX) is the least popular one with only 3 bullish hedge fund positions. Establishment Labs Holdings Inc. (NASDAQ:ESTA) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ESTA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ESTA investors were disappointed as the stock returned -14% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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