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Is FARO Technologies, Inc. (FARO) A Good Stock To Buy?

Insider Monkey finished processing more than 700 13F filings made by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of September 30. What do these smart investors think about FARO Technologies, Inc. (NASDAQ:FARO)?

FARO Technologies, Inc. (NASDAQ:FARO) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 7 hedge funds’ portfolios at the end of September. At the end of this article we will also compare FARO to other stocks including Altra Holdings, Inc. (NASDAQ:AIMC), CTS Corporation (NYSE:CTS), and Bojangles Inc (NASDAQ:BOJA) to get a better sense of its popularity.

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According to most traders, hedge funds are seen as slow, outdated investment vehicles of the past. While there are more than 8000 funds with their doors open at present, Our researchers hone in on the moguls of this group, about 700 funds. These money managers handle the majority of the smart money’s total capital, and by monitoring their best equity investments, Insider Monkey has come up with a number of investment strategies that have historically outpaced the broader indices. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Now, let’s check out the new action surrounding FARO Technologies, Inc. (NASDAQ:FARO).

Hedge fund activity in FARO Technologies, Inc. (NASDAQ:FARO)

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce’s Royce & Associates has the largest position in FARO Technologies, Inc. (NASDAQ:FARO), worth close to $20.4 million, accounting for 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Ken Fisher of Fisher Asset Management, with a $1.7 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism contain Charles Paquelet’s Skylands Capital, Chao Ku’s Nine Chapters Capital Management and Peter Muller’s PDT Partners.

Seeing as FARO Technologies, Inc. (NASDAQ:FARO) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of fund managers that slashed their entire stakes in the third quarter. It’s worth mentioning that Ken Grossman and Glen Schneider’s SG Capital Management said goodbye to the biggest stake of the 700 funds tracked by Insider Monkey, worth an estimated $7.8 million in stock. Cliff Asness’s fund, AQR Capital Management, also cut its stock, about $0.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to FARO Technologies, Inc. (NASDAQ:FARO). These stocks are Altra Holdings, Inc. (NASDAQ:AIMC), CTS Corporation (NYSE:CTS), Bojangles Inc (NASDAQ:BOJA), and Dot Hill Systems Corp. (NASDAQ:HILL). This group of stocks’ market valuations resemble FARO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AIMC 7 20354 0
CTS 8 73333 -1
BOJA 13 71765 4
HILL 17 85763 -4

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $26 million in FARO’s case. Dot Hill Systems Corp. (NASDAQ:HILL) is the most popular stock in this table. On the other hand Altra Holdings, Inc. (NASDAQ:AIMC) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks FARO Technologies, Inc. (NASDAQ:FARO) is as less popular as AIMC. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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