Is Elastic N.V. (ESTC) Stock A Buy or Sell?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Elastic N.V. (NYSE:ESTC).

Is ESTC stock a buy or sell? Elastic N.V. (NYSE:ESTC) was in 49 hedge funds’ portfolios at the end of December. The all time high for this statistic was previously 43. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. ESTC has experienced an increase in activity from the world’s largest hedge funds in recent months. There were 36 hedge funds in our database with ESTC positions at the end of the third quarter. Our calculations also showed that ESTC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 percentage points since March 2017 (see the details here).

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage (or at the end of this article). Now we’re going to check out the fresh hedge fund action regarding Elastic N.V. (NYSE:ESTC).

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

At the end of the fourth quarter, a total of 49 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from the third quarter of 2020. By comparison, 39 hedge funds held shares or bullish call options in ESTC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ESTC A Good Stock To Buy?

The largest stake in Elastic N.V. (NYSE:ESTC) was held by Sylebra Capital Management, which reported holding $687.6 million worth of stock at the end of December. It was followed by Tiger Global Management LLC with a $587.4 million position. Other investors bullish on the company included Arrowstreet Capital, Renaissance Technologies, and XN Exponent Advisors. In terms of the portfolio weights assigned to each position Sylebra Capital Management allocated the biggest weight to Elastic N.V. (NYSE:ESTC), around 17.51% of its 13F portfolio. Greenhaven Road Investment Management is also relatively very bullish on the stock, designating 8.61 percent of its 13F equity portfolio to ESTC.

Consequently, some big names were breaking ground themselves. XN Exponent Advisors, managed by Gaurav Kapadia, initiated the most valuable position in Elastic N.V. (NYSE:ESTC). XN Exponent Advisors had $84.7 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley’s Polar Capital also initiated a $70.2 million position during the quarter. The following funds were also among the new ESTC investors: Suraj Parkash Chopra’s Force Hill Capital Management, Israel Englander’s Millennium Management, and Panayotis Takis Sparaggis’s Alkeon Capital Management.

Let’s go over 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 C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), United Airlines Holdings Inc (NYSE:UAL), Franklin Resources, Inc. (NYSE:BEN), FactSet Research Systems Inc. (NYSE:FDS), China Southern Airlines Co Ltd (NYSE:ZNH), Molina Healthcare, Inc. (NYSE:MOH), and Evergy, Inc. (NYSE:EVRG). All of these stocks’ market caps resemble ESTC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CHRW 29 622398 7
UAL 52 1096410 12
BEN 33 268664 0
FDS 30 311111 1
ZNH 3 12698 0
MOH 27 1384810 -8
EVRG 33 1403512 -4
Average 29.6 728515 1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.6 hedge funds with bullish positions and the average amount invested in these stocks was $729 million. That figure was $2229 million in ESTC’s case. United Airlines Holdings Inc (NYSE:UAL) is the most popular stock in this table. On the other hand China Southern Airlines Co Ltd (NYSE:ZNH) is the least popular one with only 3 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 overall hedge fund sentiment score for ESTC is 86.9. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately ESTC wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on ESTC were disappointed as the stock returned -23.6% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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