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Is Model N Inc (MODN) A Good Stock To Buy ?

With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Model N Inc (NYSE:MODN).

Model N Inc (NYSE:MODN) investors should be aware of an increase in enthusiasm from smart money recently. MODN was in 16 hedge funds’ portfolios at the end of March. There were 14 hedge funds in our database with MODN holdings at the end of the previous quarter. Our calculations also showed that modn isn’t among the 30 most popular stocks among hedge funds.

If you’d ask most stock holders, hedge funds are seen as slow, old investment tools of years past. While there are more than 8000 funds in operation at the moment, We look at the crème de la crème of this club, around 750 funds. These hedge fund managers command most of the hedge fund industry’s total asset base, and by tracking their highest performing picks, Insider Monkey has discovered various investment strategies that have historically outstripped Mr. Market. Insider Monkey’s flagship hedge fund strategy defeated the S&P 500 index by around 5 percentage points per annum since its inception in May 2014 through June 18th. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 28.2% since February 2017 (through June 18th) even though the market was up nearly 30% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 8.2% in a month whereas our long picks outperformed the market by 2.5 percentage points in this volatile 5 week period (our long picks also beat the market by 15 percentage points so far this year).

D. E. Shaw

Let’s take a look at the key hedge fund action regarding Model N Inc (NYSE:MODN).

What does smart money think about Model N Inc (NYSE:MODN)?

Heading into the second quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the fourth quarter of 2018. By comparison, 13 hedge funds held shares or bullish call options in MODN a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

No of Hedge Funds with MODN Positions

The largest stake in Model N Inc (NYSE:MODN) was held by Trigran Investments, which reported holding $35.7 million worth of stock at the end of March. It was followed by Portolan Capital Management with a $20.5 million position. Other investors bullish on the company included Renaissance Technologies, D E Shaw, and Two Sigma Advisors.

As aggregate interest increased, key hedge funds were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in Model N Inc (NYSE:MODN). Arrowstreet Capital had $2.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $0.4 million investment in the stock during the quarter. The only other fund with a brand new MODN position is Jeffrey Talpins’s Element Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Model N Inc (NYSE:MODN) but similarly valued. We will take a look at SunCoke Energy, Inc (NYSE:SXC), The First of Long Island Corporation (NASDAQ:FLIC), Ribbon Communications Inc. (NASDAQ:RBBN), and Magenta Therapeutics, Inc. (NASDAQ:MGTA). This group of stocks’ market valuations resemble MODN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SXC 21 96805 4
FLIC 9 37076 0
RBBN 12 37336 -3
MGTA 8 85467 0
Average 12.5 64171 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $101 million in MODN’s case. SunCoke Energy, Inc (NYSE:SXC) is the most popular stock in this table. On the other hand Magenta Therapeutics, Inc. (NASDAQ:MGTA) is the least popular one with only 8 bullish hedge fund positions. Model N Inc (NYSE:MODN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on MODN as the stock returned 11.5% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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