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Is Bottomline Technologies (de), Inc. (EPAY) Going to Burn These Hedge Funds?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Bottomline Technologies (de), Inc. (NASDAQ:EPAY) and determine whether hedge funds had an edge regarding this stock.

Hedge fund interest in Bottomline Technologies (de), Inc. (NASDAQ:EPAY) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that EPAY 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). 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 TG Therapeutics Inc (NASDAQ:TGTX), Sabre Corporation (NASDAQ:SABR), and NCR Corporation (NYSE:NCR) to gather more data points. Our calculations also showed that EPAY 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. With all of this in mind we’re going to view the key hedge fund action surrounding Bottomline Technologies (de), Inc. (NASDAQ:EPAY).

How have hedgies been trading Bottomline Technologies (de), Inc. (NASDAQ:EPAY)?

At Q2’s end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2020. By comparison, 16 hedge funds held shares or bullish call options in EPAY a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

The largest stake in Bottomline Technologies (de), Inc. (NASDAQ:EPAY) was held by MIG Capital, which reported holding $51.4 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $10 million position. Other investors bullish on the company included Nishkama Capital, D E Shaw, and Millennium Management. In terms of the portfolio weights assigned to each position MIG Capital allocated the biggest weight to Bottomline Technologies (de), Inc. (NASDAQ:EPAY), around 5.29% of its 13F portfolio. Nishkama Capital is also relatively very bullish on the stock, designating 4.22 percent of its 13F equity portfolio to EPAY.

Since Bottomline Technologies (de), Inc. (NASDAQ:EPAY) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few hedge funds that elected to cut their positions entirely in the second quarter. Intriguingly, Mark Coe’s Intrinsic Edge Capital dumped the largest investment of all the hedgies tracked by Insider Monkey, worth close to $5.2 million in stock. Brandon Haley’s fund, Holocene Advisors, also said goodbye to its stock, about $0.7 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Bottomline Technologies (de), Inc. (NASDAQ:EPAY). These stocks are TG Therapeutics Inc (NASDAQ:TGTX), Sabre Corporation (NASDAQ:SABR), NCR Corporation (NYSE:NCR), Independent Bank Corp (NASDAQ:INDB), Viela Bio, Inc. (NASDAQ:VIE), Pacira Biosciences Inc (NASDAQ:PCRX), and Vishay Intertechnology, Inc. (NYSE:VSH). This group of stocks’ market caps match EPAY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TGTX 34 631710 8
SABR 39 412328 9
NCR 32 195774 0
INDB 7 10886 3
VIE 8 241277 2
PCRX 29 553399 3
VSH 28 333650 5
Average 25.3 339861 4.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.3 hedge funds with bullish positions and the average amount invested in these stocks was $340 million. That figure was $117 million in EPAY’s case. Sabre Corporation (NASDAQ:SABR) is the most popular stock in this table. On the other hand Independent Bank Corp (NASDAQ:INDB) is the least popular one with only 7 bullish hedge fund positions. Bottomline Technologies (de), Inc. (NASDAQ:EPAY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EPAY is 46.7. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately EPAY wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EPAY investors were disappointed as the stock returned -17% in 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 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.