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Is Nevro Corp (NVRO) Going to Burn These Hedge Funds?

Does Nevro Corp (NYSE:NVRO) represent a good buying opportunity at the moment? Let’s briefly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail unconceivably on some occasions, but their stock picks have been generating superior risk-adjusted returns on average over the years.

Is Nevro Corp (NYSE:NVRO) a buy, sell, or hold? Money managers are betting on the stock. The number of long hedge fund positions improved by 2 in recent months. Our calculations also showed that NVRO isn’t among the 30 most popular stocks among hedge funds.

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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.

SAC CAPITAL ADVISORS

Let’s review the key hedge fund action surrounding Nevro Corp (NYSE:NVRO).

Hedge fund activity in Nevro Corp (NYSE:NVRO)

Heading into the fourth quarter of 2018, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NVRO over the last 13 quarters. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

NVRO_dec2018

Among these funds, Point72 Asset Management held the most valuable stake in Nevro Corp (NYSE:NVRO), which was worth $85 million at the end of the third quarter. On the second spot was Consonance Capital Management which amassed $82.4 million worth of shares. Moreover, OrbiMed Advisors, Millennium Management, and Deerfield Management were also bullish on Nevro Corp (NYSE:NVRO), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, some big names were leading the bulls’ herd. Millennium Management, managed by Israel Englander, initiated the most valuable position in Nevro Corp (NYSE:NVRO). Millennium Management had $43.1 million invested in the company at the end of the quarter. James E. Flynn’s Deerfield Management also made a $29.9 million investment in the stock during the quarter. The following funds were also among the new NVRO investors: Israel Englander’s Millennium Management, Michael Castor’s Sio Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s go over hedge fund activity in other stocks similar to Nevro Corp (NYSE:NVRO). We will take a look at Sangamo Therapeutics, Inc. (NASDAQ:SGMO), Aircastle Limited (NYSE:AYR), Cango Inc. (NYSE:CANG), and Coca-Cola Bottling Co. Consolidated (NASDAQ:COKE). This group of stocks’ market valuations resemble NVRO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SGMO 26 143431 -3
AYR 15 98038 1
CANG 2 1402 2
COKE 9 6921 0
Average 13 62448 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $381 million in NVRO’s case. Sangamo Therapeutics, Inc. (NASDAQ:SGMO) is the most popular stock in this table. On the other hand 0 is the least popular one with only 2 bullish hedge fund positions. Nevro Corp (NYSE:NVRO) 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 SGMO might be a better candidate to consider a long position.

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

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