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

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of iRhythm Technologies, Inc. (NASDAQ:IRTC).

iRhythm Technologies, Inc. (NASDAQ:IRTC) shareholders have witnessed a decrease in support from the world’s most elite money managers lately. IRTC was in 15 hedge funds’ portfolios at the end of March. There were 22 hedge funds in our database with IRTC positions at the end of the previous quarter. Our calculations also showed that IRTC 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 58 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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 largest producers of bauxite to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a peek at the latest hedge fund action surrounding iRhythm Technologies, Inc. (NASDAQ:IRTC).

What does smart money think about iRhythm Technologies, Inc. (NASDAQ:IRTC)?

Heading into the second quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -32% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in IRTC a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

The largest stake in iRhythm Technologies, Inc. (NASDAQ:IRTC) was held by Rock Springs Capital Management, which reported holding $52.5 million worth of stock at the end of September. It was followed by Holocene Advisors with a $34.1 million position. Other investors bullish on the company included Citadel Investment Group, Partner Fund Management, and Millennium Management. In terms of the portfolio weights assigned to each position Rock Springs Capital Management allocated the biggest weight to iRhythm Technologies, Inc. (NASDAQ:IRTC), around 2.17% of its 13F portfolio. Partner Fund Management is also relatively very bullish on the stock, setting aside 1.56 percent of its 13F equity portfolio to IRTC.

Seeing as iRhythm Technologies, Inc. (NASDAQ:IRTC) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few hedge funds that slashed their positions entirely heading into Q4. At the top of the heap, Renaissance Technologies dropped the largest position of all the hedgies tracked by Insider Monkey, comprising close to $12.1 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund sold off about $6.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 7 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as iRhythm Technologies, Inc. (NASDAQ:IRTC) but similarly valued. These stocks are The Howard Hughes Corporation (NYSE:HHC), MGIC Investment Corporation (NYSE:MTG), Bank OZK (NASDAQ:OZK), and First Hawaiian, Inc. (NASDAQ:FHB). This group of stocks’ market valuations match IRTC’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $336 million. That figure was $177 million in IRTC’s case. MGIC Investment Corporation (NYSE:MTG) is the most popular stock in this table. On the other hand First Hawaiian, Inc. (NASDAQ:FHB) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks iRhythm Technologies, Inc. (NASDAQ:IRTC) is even less popular than FHB. Hedge funds clearly dropped the ball on IRTC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on IRTC as the stock returned 40.2% so far in the second quarter and outperformed the market by an even larger margin.

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