Hedge Funds Souring On PFSweb, Inc. (PFSW)

In this article you are going to find out whether hedge funds think PFSweb, Inc. (NASDAQ:PFSW) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

PFSweb, Inc. (NASDAQ:PFSW) investors should pay attention to a decrease in enthusiasm from smart money recently. Our calculations also showed that PFSW isn’t among the 30 most popular stocks among hedge funds (click for Q1 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In the eyes of most traders, hedge funds are assumed to be slow, outdated investment vehicles of years past. While there are greater than 8000 funds with their doors open at the moment, We look at the aristocrats of this group, around 850 funds. These investment experts oversee the lion’s share of the hedge fund industry’s total asset base, and by watching their highest performing equity investments, Insider Monkey has deciphered a number of investment strategies that have historically exceeded the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Arnaud Ajdler Engine Capital

Arnaud Ajdler of Engine Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the key hedge fund action surrounding PFSweb, Inc. (NASDAQ:PFSW).

How are hedge funds trading PFSweb, Inc. (NASDAQ:PFSW)?

At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PFSW over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

More specifically, Engine Capital was the largest shareholder of PFSweb, Inc. (NASDAQ:PFSW), with a stake worth $7 million reported as of the end of September. Trailing Engine Capital was Renaissance Technologies, which amassed a stake valued at $2.2 million. Two Sigma Advisors, Manatuck Hill Partners, and Arrowstreet 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 Engine Capital allocated the biggest weight to PFSweb, Inc. (NASDAQ:PFSW), around 3.66% of its 13F portfolio. Manatuck Hill Partners is also relatively very bullish on the stock, earmarking 0.06 percent of its 13F equity portfolio to PFSW.

Because PFSweb, Inc. (NASDAQ:PFSW) has witnessed falling interest from the aggregate hedge fund industry, we can see that there exists a select few hedge funds that slashed their full holdings in the first quarter. Interestingly, Roger Ibbotson’s Zebra Capital Management dumped the biggest investment of the “upper crust” of funds watched by Insider Monkey, comprising close to $0.1 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund said goodbye to about $0.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to PFSweb, Inc. (NASDAQ:PFSW). These stocks are ClearPoint Neuro Inc. (NASDAQ:CLPT), Flotek Industries Inc (NYSE:FTK), Community First Bancshares, Inc. (NASDAQ:CFBI), and Hennessy Advisors, Inc. (NASDAQ:HNNA). All of these stocks’ market caps resemble PFSW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CLPT 3 382 3
FTK 8 8066 -1
CFBI 1 577 0
HNNA 2 975 0
Average 3.5 2500 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.5 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $9 million in PFSW’s case. Flotek Industries Inc (NYSE:FTK) is the most popular stock in this table. On the other hand Community First Bancshares, Inc. (NASDAQ:CFBI) is the least popular one with only 1 bullish hedge fund positions. PFSweb, Inc. (NASDAQ:PFSW) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on PFSW as the stock returned 97.7% in Q2 (through the end of May) 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.