Is CPSI A Good Stock To Buy Now?

In this article we will check out the progression of hedge fund sentiment towards Computer Programs & Systems, Inc. (NASDAQ:CPSI) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is CPSI a good stock to buy now? The smart money was in a pessimistic mood. The number of long hedge fund bets decreased by 1 recently. Computer Programs & Systems, Inc. (NASDAQ:CPSI) was in 10 hedge funds’ portfolios at the end of September. The all time high for this statistics is 18. Our calculations also showed that CPSI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 11 hedge funds in our database with CPSI positions at the end of the second quarter.

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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 66 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Bernard Horn of Polaris Capital Management

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 recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind we’re going to view the key hedge fund action surrounding Computer Programs & Systems, Inc. (NASDAQ:CPSI).

Do Hedge Funds Think CPSI Is A Good Stock To Buy Now?

At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CPSI over the last 21 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Arrowstreet Capital was the largest shareholder of Computer Programs & Systems, Inc. (NASDAQ:CPSI), with a stake worth $3.7 million reported as of the end of September. Trailing Arrowstreet Capital was AQR Capital Management, which amassed a stake valued at $3 million. D E Shaw, Winton Capital Management, and Polaris Capital Management 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 Polaris Capital Management allocated the biggest weight to Computer Programs & Systems, Inc. (NASDAQ:CPSI), around 0.08% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.06 percent of its 13F equity portfolio to CPSI.

Seeing as Computer Programs & Systems, Inc. (NASDAQ:CPSI) has faced a decline in interest from hedge fund managers, logic holds that there were a few funds who were dropping their full holdings last quarter. Intriguingly, Roger Ibbotson’s Zebra Capital Management sold off the biggest stake of the 750 funds watched by Insider Monkey, valued at close to $0.4 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund cut about $0.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Computer Programs & Systems, Inc. (NASDAQ:CPSI). We will take a look at Barrett Business Services, Inc. (NASDAQ:BBSI), Puma Biotechnology Inc (NASDAQ:PBYI), Carriage Services, Inc. (NYSE:CSV), Voyager Therapeutics, Inc. (NASDAQ:VYGR), Jernigan Capital Inc (NYSE:JCAP), Prothena Corporation plc (NASDAQ:PRTA), and Heritage Commerce Corp. (NASDAQ:HTBK). This group of stocks’ market valuations match CPSI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BBSI 13 53216 0
PBYI 17 125131 -1
CSV 11 39956 -1
VYGR 10 49897 -4
JCAP 9 27556 -3
PRTA 23 207482 -2
HTBK 12 16300 1
Average 13.6 74220 -1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.6 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $16 million in CPSI’s case. Prothena Corporation plc (NASDAQ:PRTA) is the most popular stock in this table. On the other hand Jernigan Capital Inc (NYSE:JCAP) is the least popular one with only 9 bullish hedge fund positions. Computer Programs & Systems, Inc. (NASDAQ:CPSI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CPSI is 24.2. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately CPSI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CPSI investors were disappointed as the stock returned 2.8% since the end of September (through 12/8) 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 most of these stocks already outperformed the market in 2020.

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