Is GMS Inc. (GMS) A Good Stock To Buy?

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is GMS Inc. (NYSE:GMS), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is GMS a good stock to buy? GMS Inc. (NYSE:GMS) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 19 hedge funds’ portfolios at the end of June. Our calculations also showed that GMS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as USANA Health Sciences, Inc. (NYSE:USNA), Translate Bio, Inc. (NASDAQ:TBIO), and Two Harbors Investment Corp (NYSE:TWO) to gather more data points.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

With all of this in mind we’re going to analyze the key hedge fund action encompassing GMS Inc. (NYSE:GMS).

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

At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in GMS over the last 24 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.

The largest stake in GMS Inc. (NYSE:GMS) was held by Coliseum Capital, which reported holding $239 million worth of stock at the end of June. It was followed by Scopia Capital with a $29.5 million position. Other investors bullish on the company included Arrowstreet Capital, SG Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Coliseum Capital allocated the biggest weight to GMS Inc. (NYSE:GMS), around 21.19% of its 13F portfolio. Scopia Capital is also relatively very bullish on the stock, earmarking 4 percent of its 13F equity portfolio to GMS.

Seeing as GMS Inc. (NYSE:GMS) has witnessed declining sentiment from the smart money, it’s safe to say that there lies a certain “tier” of funds who sold off their entire stakes in the second quarter. Interestingly, Dan Rasmussen’s Verdad Advisers dumped the largest position of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $10.4 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund dumped about $0.8 million worth. These moves are intriguing to say the least, 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 GMS Inc. (NYSE:GMS). These stocks are USANA Health Sciences, Inc. (NYSE:USNA), Translate Bio, Inc. (NASDAQ:TBIO), Two Harbors Investment Corp (NYSE:TWO), Establishment Labs Holdings Inc. (NASDAQ:ESTA), PennyMac Mortgage Investment Trust (NYSE:PMT), B. Riley Financial, Inc. (NASDAQ:RILY), and BancFirst Corporation (NASDAQ:BANF). This group of stocks’ market caps are similar to GMS’s market cap.

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As you can see these stocks had an average of 18.1 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $321 million in GMS’s case. Two Harbors Investment Corp (NYSE:TWO) is the most popular stock in this table. On the other hand BancFirst Corporation (NASDAQ:BANF) is the least popular one with only 7 bullish hedge fund positions. GMS Inc. (NYSE:GMS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GMS is 53.9. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately GMS wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on GMS were disappointed as the stock returned -3.7% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 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.