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Is Enterprise Financial Services Corp (EFSC) A Good Stock To Buy?

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That’s why we believe it would be worthwhile to take a look at the hedge fund sentiment on Enterprise Financial Services Corp (NASDAQ:EFSC) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Enterprise Financial Services Corp (NASDAQ:EFSC) investors should pay attention to a decrease in hedge fund interest in recent months. EFSC was in 13 hedge funds’ portfolios at the end of the second quarter of 2019. There were 15 hedge funds in our database with EFSC positions at the end of the previous quarter. Our calculations also showed that EFSC isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most shareholders, hedge funds are viewed as slow, old financial tools of yesteryear. While there are greater than 8000 funds trading at the moment, We choose to focus on the aristocrats of this club, about 750 funds. Most estimates calculate that this group of people command bulk of the smart money’s total asset base, and by tailing their highest performing picks, Insider Monkey has spotted several investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship hedge fund strategy outstripped the S&P 500 index by around 5 percentage points a year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

Paul Marshall Marshall Wace

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a glance at the new hedge fund action regarding Enterprise Financial Services Corp (NASDAQ:EFSC).

How are hedge funds trading Enterprise Financial Services Corp (NASDAQ:EFSC)?

Heading into the third quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in EFSC 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.

No of Hedge Funds with EFSC Positions

The largest stake in Enterprise Financial Services Corp (NASDAQ:EFSC) was held by Renaissance Technologies, which reported holding $19.7 million worth of stock at the end of March. It was followed by Elizabeth Park Capital Management with a $12 million position. Other investors bullish on the company included Millennium Management, Marshall Wace LLP, and Polar Capital.

Due to the fact that Enterprise Financial Services Corp (NASDAQ:EFSC) has experienced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few funds who were dropping their entire stakes heading into Q3. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, valued at close to $1.3 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund sold off about $0.5 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 2 funds heading into Q3.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Enterprise Financial Services Corp (NASDAQ:EFSC) but similarly valued. We will take a look at Fitbit Inc (NYSE:FIT), Funko, Inc. (NASDAQ:FNKO), Central European Media Enterprises Ltd. (NASDAQ:CETV), and NIC Inc. (NASDAQ:EGOV). This group of stocks’ market caps resemble EFSC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FIT 13 81288 -5
FNKO 17 97217 1
CETV 8 9824 1
EGOV 17 90209 -1
Average 13.75 69635 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $53 million in EFSC’s case. Funko, Inc. (NASDAQ:FNKO) is the most popular stock in this table. On the other hand Central European Media Enterprises Ltd. (NASDAQ:CETV) is the least popular one with only 8 bullish hedge fund positions. Enterprise Financial Services Corp (NASDAQ:EFSC) is not the least popular stock in this group but hedge fund interest is still below average. 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately EFSC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EFSC investors were disappointed as the stock returned -1.7% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.

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

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