Is AppFolio Inc (APPF) A Good Stock To Buy?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The time period between June 25 and the end of October was one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of AppFolio Inc (NASDAQ:APPF).

AppFolio Inc (NASDAQ:APPF) investors should be aware of a decrease in support from the world’s most elite money managers of late. AppFolio Inc (NASDAQ:APPF) was in 5 hedge funds’ portfolios at the end of September. There were 8 hedge funds in our database with AppFolio Inc (NASDAQ:APPF) positions at the end of the previous quarter. The hedge fund behavior might seem a little surprising to the average investors, as the shares of the company were up 19.50% throughout the quarter. For a better understanding of the hedge fund sentiment, we will find out more about hedge funds that held stake in AppFolio Inc (NASDAQ:APPF), at the end of September.

The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article, we will examine companies such as Blucora Inc (NASDAQ:BCOR), Heritage Financial Corporation (NASDAQ:HFWA), and Resources Connection, Inc. (NASDAQ:RECN) to gather more data points.

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In the eyes of most traders, hedge funds are viewed as worthless, old financial vehicles of the past. While there are greater than 8000 funds in operation at the moment, we hone in on the upper echelon of this club, about 700 funds. These money managers control the lion’s share of the hedge fund industry’s total asset base, and by following their first-class picks, Insider Monkey has deciphered several investment strategies that have historically surpassed Mr. Market. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points a year for a decade in their back tests.

With all of this in mind, we’re going to analyze the fresh action surrounding AppFolio Inc (NASDAQ:APPF).

How are hedge funds trading AppFolio Inc (NASDAQ:APPF)?

At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decrease of 38% from one quarter earlier. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Christopher Lyle’s SCGE Management has the most valuable position in AppFolio Inc (NASDAQ:APPF), worth close to $11.8 million, corresponding to 1.9% of its total 13F portfolio. The second most bullish fund manager is D E Shaw, holding a $0.7 million position; less than 0.1% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions encompass Paul Tudor Jones’s Tudor Investment Corp, Ken Griffin’s Citadel Investment Group, and Israel Englander’s Millennium Management.

Because AppFolio Inc (NASDAQ:APPF) has faced a declination in interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of money managers that decided to sell off their positions entirely last quarter. Intriguingly, David Rodriguez-Fraile’s BlueMar Capital Management cut the largest stake of all the hedgies monitored by Insider Monkey, totaling an estimated $1.6 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also said goodbye to its stock, about $1.4 million worth of shares. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as AppFolio Inc (NASDAQ:APPF) but similarly valued. These stocks are Blucora Inc (NASDAQ:BCOR), Heritage Financial Corporation (NASDAQ:HFWA), Resources Connection, Inc. (NASDAQ:RECN), and Forrester Research, Inc. (NASDAQ:FORR). All of these stocks’ market caps match AppFolio Inc (NASDAQ:APPF)’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BCOR 16 68574 -5
HFWA 10 56119 0
RECN 11 31991 -1
FORR 10 56855 1

As you can see, these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $14 million in AppFolio Inc (NASDAQ:APPF)’s case. Blucora Inc (NASDAQ:BCOR) is the most popular stock in this table. On the other hand, Heritage Financial Corporation (NASDAQ:HFWA) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks, AppFolio Inc (NASDAQ:APPF) is even less popular than Heritage Financial Corporation (NASDAQ:HFWA). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case, more research is warranted.