In this article we will check out the progression of hedge fund sentiment towards Despegar.com, Corp. (NYSE:DESP) 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 DESP a good stock to buy now? Despegar.com, Corp. (NYSE:DESP) shareholders have witnessed a decrease in hedge fund interest recently. Despegar.com, Corp. (NYSE:DESP) was in 17 hedge funds’ portfolios at the end of September. The all time high for this statistic is 20. There were 18 hedge funds in our database with DESP holdings at the end of June. Our calculations also showed that DESP 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).
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.
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. Now we’re going to review the recent hedge fund action regarding Despegar.com, Corp. (NYSE:DESP).
Do Hedge Funds Think DESP Is A Good Stock To Buy Now?
At third quarter’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DESP over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Tiger Global Management LLC held the most valuable stake in Despegar.com, Corp. (NYSE:DESP), which was worth $58.9 million at the end of the third quarter. On the second spot was Ancient Art (Teton Capital) which amassed $20.3 million worth of shares. Two Creeks Capital Management, Bares Capital Management, and D E Shaw 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 Ancient Art (Teton Capital) allocated the biggest weight to Despegar.com, Corp. (NYSE:DESP), around 2.78% of its 13F portfolio. Nishkama Capital is also relatively very bullish on the stock, designating 0.79 percent of its 13F equity portfolio to DESP.
Judging by the fact that Despegar.com, Corp. (NYSE:DESP) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there exists a select few fund managers who sold off their positions entirely by the end of the third quarter. Interestingly, Parvinder Thiara’s Athanor Capital dumped the biggest stake of the 750 funds followed by Insider Monkey, totaling close to $3.9 million in stock, and Brian Gaines’s Springhouse Capital Management was right behind this move, as the fund said goodbye to about $0.4 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Despegar.com, Corp. (NYSE:DESP) but similarly valued. These stocks are Cue Biopharma, Inc. (NASDAQ:CUE), NetSTREIT Corp. (NYSE:NTST), Horizon Bancorp, Inc. (NASDAQ:HBNC), Vectrus Inc (NYSE:VEC), Universal Insurance Holdings, Inc. (NYSE:UVE), RPT Realty (NYSE:RPT), and Koppers Holdings Inc. (NYSE:KOP). This group of stocks’ market valuations are closest to DESP’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.9 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $98 million in DESP’s case. Vectrus Inc (NYSE:VEC) is the most popular stock in this table. On the other hand NetSTREIT Corp. (NYSE:NTST) is the least popular one with only 10 bullish hedge fund positions. Despegar.com, Corp. (NYSE:DESP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DESP is 79.5. 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. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on DESP as the stock returned 104.6% since the end of Q3 (through 12/14) 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.