Is Computer Programs & Systems, Inc. (CPSI) A Good Stock To Buy?

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

Computer Programs & Systems, Inc. (NASDAQ:CPSI) was in 7 hedge funds’ portfolios at the end of the third quarter of 2016. CPSI investors should pay attention to a decrease in hedge fund interest of late. There were 13 hedge funds in our database with CPSI holdings at the end of the previous quarter. At the end of this article we will also compare CPSI to other stocks including Heritage Commerce Corp. (NASDAQ:HTBK), Trevena Inc (NASDAQ:TRVN), and Covenant Transportation Group, Inc. (NASDAQ:CVTI) to get a better sense of its popularity.

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We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

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Keeping this in mind, we’re going to take a look at the new action regarding Computer Programs & Systems, Inc. (NASDAQ:CPSI).

How have hedgies been trading Computer Programs & Systems, Inc. (NASDAQ:CPSI)?

At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a drop of 46% from the previous quarter. By comparison, 9 hedge funds held shares or bullish call options in CPSI heading into this year. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Alexander Medina Seaver’s Stadium Capital Management has the number one position in Computer Programs & Systems, Inc. (NASDAQ:CPSI), worth close to $22.7 million, accounting for 7.3% of its total 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, holding a $5 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Other peers that hold long positions consist of Renaissance Technologies, one of the largest hedge funds in the world, John Overdeck and David Siegel’s Two Sigma Advisors and Joel Greenblatt’s Gotham Asset Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Due to the fact that Computer Programs & Systems, Inc. (NASDAQ:CPSI) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds who sold off their positions entirely last quarter. It’s worth mentioning that Matthew Tewksbury’s Stevens Capital Management got rid of the biggest stake of the 700 funds followed by Insider Monkey, worth an estimated $0.6 million in stock, and Alec Litowitz and Ross Laser’s Magnetar Capital was right behind this move, as the fund said goodbye to about $0.3 million worth of shares.

Let’s now review hedge fund activity in other stocks similar to Computer Programs & Systems, Inc. (NASDAQ:CPSI). We will take a look at Heritage Commerce Corp. (NASDAQ:HTBK), Trevena Inc (NASDAQ:TRVN), Covenant Transportation Group, Inc. (NASDAQ:CVTI), and NQ Mobile Inc (ADR) (NYSE:NQ). All of these stocks’ market caps match CPSI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HTBK 7 11636 -1
TRVN 10 32645 0
CVTI 8 18452 3
NQ 8 10417 1

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $37 million in CPSI’s case. Trevena Inc (NASDAQ:TRVN) is the most popular stock in this table. On the other hand Heritage Commerce Corp. (NASDAQ:HTBK) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Computer Programs & Systems, Inc. (NASDAQ:CPSI) is even less popular than HTBK. 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.

Disclosure: None