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Is Elastic N.V. (ESTC) A Good Stock To Buy?

How do you pick the next stock to invest in? One way would be to spend hours 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 Elastic N.V. (NYSE:ESTC).

Elastic N.V. (NYSE:ESTC) was in 18 hedge funds’ portfolios at the end of March. ESTC investors should be aware of a decrease in activity from the world’s largest hedge funds recently. There were 21 hedge funds in our database with ESTC positions at the end of the previous quarter. Our calculations also showed that estc isn’t among the 30 most popular stocks among hedge funds.

Today there are a multitude of indicators shareholders can use to assess stocks. Two of the less utilized indicators are hedge fund and insider trading indicators. We have shown that, historically, those who follow the best picks of the top money managers can outpace the market by a healthy amount (see the details here).

Brad Gerstner Altimeter Capital

Brad Gerstner of Altimeter Capital

We’re going to take a glance at the recent hedge fund action regarding Elastic N.V. (NYSE:ESTC).

How have hedgies been trading Elastic N.V. (NYSE:ESTC)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ESTC over the last 15 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.

No of Hedge Funds with ESTC Positions

More specifically, Matrix Capital Management was the largest shareholder of Elastic N.V. (NYSE:ESTC), with a stake worth $59.9 million reported as of the end of March. Trailing Matrix Capital Management was Tiger Global Management, which amassed a stake valued at $58.9 million. Altimeter Capital Management, Sylebra Capital Management, and Ratan Capital Group were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that Elastic N.V. (NYSE:ESTC) has witnessed declining sentiment from the smart money, logic holds that there exists a select few fund managers who sold off their entire stakes by the end of the third quarter. At the top of the heap, Christopher James’s Partner Fund Management said goodbye to the largest position of all the hedgies tracked by Insider Monkey, worth about $5.2 million in stock. Andrew Sandler’s fund, Sandler Capital Management, also sold off its stock, about $3.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 3 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Elastic N.V. (NYSE:ESTC) but similarly valued. We will take a look at Alkermes Plc (NASDAQ:ALKS), James Hardie Industries plc (NYSE:JHX), Harley-Davidson, Inc. (NYSE:HOG), and CyrusOne Inc (NASDAQ:CONE). This group of stocks’ market valuations are similar to ESTC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALKS 22 309347 3
JHX 2 4238 0
HOG 16 54823 -3
CONE 17 193050 3
Average 14.25 140365 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $162 million in ESTC’s case. Alkermes Plc (NASDAQ:ALKS) is the most popular stock in this table. On the other hand James Hardie Industries plc (NYSE:JHX) is the least popular one with only 2 bullish hedge fund positions. Elastic N.V. (NYSE:ESTC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on ESTC as the stock returned 5% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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