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Is Evofem Biosciences, Inc. (EVFM) A Good Buy According To Hedge Funds?

In this article you are going to find out whether hedge funds think Evofem Biosciences, Inc. (NASDAQ:EVFM) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Evofem Biosciences, Inc. (NASDAQ:EVFM) was in 4 hedge funds’ portfolios at the end of March. EVFM has experienced an increase in enthusiasm from smart money recently. There were 2 hedge funds in our database with EVFM positions at the end of the previous quarter. Our calculations also showed that EVFM isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 44 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Felix Baker - Baker Bros.

Felix Baker of Baker Bros.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the latest hedge fund action encompassing Evofem Biosciences, Inc. (NASDAQ:EVFM).

How have hedgies been trading Evofem Biosciences, Inc. (NASDAQ:EVFM)?

At Q1’s end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 100% from the fourth quarter of 2019. On the other hand, there were a total of 3 hedge funds with a bullish position in EVFM a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Julian Baker and Felix Baker’s Baker Bros. Advisors has the most valuable position in Evofem Biosciences, Inc. (NASDAQ:EVFM), worth close to $3.3 million, comprising less than 0.1%% of its total 13F portfolio. The second largest stake is held by Anand Parekh of Alyeska Investment Group, with a $0.5 million call position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism consist of Ken Griffin’s Citadel Investment Group, Michael Gelband’s ExodusPoint Capital and Renaissance Technologies. In terms of the portfolio weights assigned to each position Baker Bros. Advisors allocated the biggest weight to Evofem Biosciences, Inc. (NASDAQ:EVFM), around 0.02% of its 13F portfolio. ExodusPoint Capital is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to EVFM.

Now, specific money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, initiated the most valuable position in Evofem Biosciences, Inc. (NASDAQ:EVFM). Citadel Investment Group had $0.1 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $0.1 million position during the quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Evofem Biosciences, Inc. (NASDAQ:EVFM) but similarly valued. We will take a look at Sportsman’s Warehouse Holdings Inc (NASDAQ:SPWH), Landmark Infrastructure Partners LP (NASDAQ:LMRK), Equity Bancshares, Inc. (NASDAQ:EQBK), and CRA International, Inc. (NASDAQ:CRAI). This group of stocks’ market valuations are closest to EVFM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPWH 26 64257 -1
LMRK 1 894 -1
EQBK 5 24525 0
CRAI 11 33945 -3
Average 10.75 30905 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $4 million in EVFM’s case. Sportsman’s Warehouse Holdings Inc (NASDAQ:SPWH) is the most popular stock in this table. On the other hand Landmark Infrastructure Partners LP (NASDAQ:LMRK) is the least popular one with only 1 bullish hedge fund positions. Evofem Biosciences, Inc. (NASDAQ:EVFM) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately EVFM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EVFM investors were disappointed as the stock returned 2.6% during the second 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 10 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.