Is nCino, Inc. (NCNO) A Good Stock To Buy?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards nCino, Inc. (NASDAQ:NCNO).

Is NCNO a good stock to buy now? nCino, Inc. (NASDAQ:NCNO) shareholders have witnessed a decrease in enthusiasm from smart money lately. nCino, Inc. (NASDAQ:NCNO) was in 21 hedge funds’ portfolios at the end of September. The all time high for this statistic is 28. Our calculations also showed that NCNO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a look at the new hedge fund action regarding nCino, Inc. (NASDAQ:NCNO).

Chase Coleman of Tiger Global

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

At the end of September, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NCNO over the last 25 quarters. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

More specifically, HMI Capital was the largest shareholder of nCino, Inc. (NASDAQ:NCNO), with a stake worth $415.9 million reported as of the end of September. Trailing HMI Capital was Select Equity Group, which amassed a stake valued at $33.1 million. Renaissance Technologies, Tiger Global Management LLC, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position HMI Capital allocated the biggest weight to nCino, Inc. (NASDAQ:NCNO), around 12.47% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, dishing out 0.42 percent of its 13F equity portfolio to NCNO.

Judging by the fact that nCino, Inc. (NASDAQ:NCNO) has faced falling interest from the aggregate hedge fund industry, logic holds that there were a few hedgies who were dropping their positions entirely last quarter. At the top of the heap, Josh Donfeld and David Rogers’s Castle Hook Partners sold off the biggest position of the 750 funds watched by Insider Monkey, valued at an estimated $6 million in stock. Frank Fu’s fund, CaaS Capital, also said goodbye to its stock, about $4.3 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 4 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to nCino, Inc. (NASDAQ:NCNO). These stocks are Frontier Communications Parent Inc. (NASDAQ:FYBR), Ritchie Bros. Auctioneers Incorporated (NYSE:RBA), Thor Industries, Inc. (NYSE:THO), Medpace Holdings, Inc. (NASDAQ:MEDP), Kinross Gold Corporation (NYSE:KGC), TopBuild Corp (NYSE:BLD), and Envista Holdings Corporation (NYSE:NVST). All of these stocks’ market caps are similar to NCNO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FYBR 43 3539483 43
RBA 13 277550 -9
THO 29 174266 3
MEDP 23 424211 -1
KGC 27 321000 -1
BLD 17 93609 -5
NVST 33 1073278 -5
Average 26.4 843342 3.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $843 million. That figure was $583 million in NCNO’s case. Frontier Communications Parent Inc. (NASDAQ:FYBR) is the most popular stock in this table. On the other hand Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) is the least popular one with only 13 bullish hedge fund positions. nCino, Inc. (NASDAQ:NCNO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NCNO is 36.8. 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 negative signal and 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 29.6% in 2021 and surpassed the market again by 3.6 percentage points. Unfortunately NCNO wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); NCNO investors were disappointed as the stock returned -22.8% since the end of September (through 12/31) 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 most of these stocks already outperformed the market in 2021.

Follow Ncino Opco Inc. (NASDAQ:NCNO)

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