Is GMS Inc (GMS) A Good Stock To Buy According To Hedge Funds?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

GMS Inc (NYSE:GMS) has experienced a decrease in enthusiasm from smart money in recent months. There were 10 hedge funds in our database with GMS holdings at the end of September. At the end of this article we will also compare GMS to other stocks including Penn West Petroleum Ltd (USA) (NYSE:PWE), General American Investors Co. Inc. (NYSE:GAM), and Capstead Mortgage Corporation (NYSE:CMO) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

With all of this in mind, let’s take a peek at the latest action encompassing GMS Inc (NYSE:GMS).

What does the smart money think about GMS Inc (NYSE:GMS)?

Heading into the fourth quarter of 2016, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in GMS heading into this year. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Griffin’s Citadel Investment Group has the biggest position in GMS Inc (NYSE:GMS), worth close to $12.9 million, accounting for less than 0.1%% of its total 13F portfolio. Coming in second is Balyasny Asset Management, led by Dmitry Balyasny, which holds a $4.7 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish contain Anand Parekh’s Alyeska Investment Group, Mark Coe’s Coe Capital Management and Gregg Moskowitz’s Interval Partners. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that dumped their entire stakes in the stock during the third quarter. It’s worth mentioning that Stuart J. Zimmer’s Zimmer Partners dumped the biggest position of the “upper crust” of funds monitored by Insider Monkey, comprising about $7.4 million in stock, and Ira Unschuld’s Brant Point Investment Management was right behind this move, as the fund sold off about $4.4 million worth of shares.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as GMS Inc (NYSE:GMS) but similarly valued. These stocks are Penn West Petroleum Ltd (USA) (NYSE:PWE), General American Investors Co. Inc. (NYSE:GAM), Capstead Mortgage Corporation (NYSE:CMO), and Nordic American Tanker Ltd (NYSE:NAT). All of these stocks’ market caps are closest to GMS’s market cap.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $38 million in GMS’s case. Penn West Petroleum Ltd (USA) (NYSE:PWE) is the most popular stock in this table. On the other hand General American Investors Co. Inc. (NYSE:GAM) is the least popular one with only 4 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PWE might be a better candidate to consider taking a long position in.

Disclosure: None