Is Q2 Holdings Inc (QTWO) Going to Burn Investors?

The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge funds have been producing disappointing net returns in recent years, however that was partly due to the poor performance of small-cap stocks in general. Well, small-cap stocks finally turned the corner and have been beating the large-cap stocks by more than 10 percentage points over the last 5 months.This means the relevancy of hedge funds’ public filings became inarguable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Q2 Holdings Inc (NYSE:QTWO).

Q2 Holdings Inc (NYSE:QTWO) has experienced a decrease in activity from the world’s largest hedge funds recently. 12 hedge funds that we track were long the stock on September 30. There were 14 hedge funds in our database with QTWO positions at the end of the June quarter. At the end of this article we will also compare QTWO to other stocks including Tennant Company (NYSE:TNC), Super Micro Computer, Inc. (NASDAQ:SMCI), and Oxford Industries, Inc. (NYSE:OXM) 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.

What have hedge funds been doing with Q2 Holdings Inc (NYSE:QTWO)?

At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 14% drop from the second quarter of 2016. Below, you can check out the change in hedge fund sentiment towards QTWO over the last 5 quarters, which shows a steep decline in bullish positions over the past 4 quarters. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Matthew Hulsizer’s PEAK6 Capital Management has the largest call position in Q2 Holdings Inc (NYSE:QTWO), worth close to $8.1 million. The second largest stake is held by Paul Reeder and Edward Shapiro of PAR Capital Management, with a $4.7 million position. Some other professional money managers that are bullish include Richard Driehaus’ Driehaus Capital, Renaissance Technologies, one of the largest hedge funds in the world, and Chuck Royce’s Royce & Associates. 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.

Since Q2 Holdings Inc (NYSE:QTWO) has sustained bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there is a sect of money managers that elected to cut their entire stakes in the third quarter. Interestingly, Seymour Sy Kaufman and Michael Stark’s Crosslink Capital cut the largest stake of all the investors monitored by Insider Monkey, totaling about $6 million in stock. Drew Cupps’ fund, Cupps Capital Management, also dumped its stock, about $2.4 million worth.

Let’s check out hedge fund activity in other stocks similar to Q2 Holdings Inc (NYSE:QTWO). We will take a look at Tennant Company (NYSE:TNC), Super Micro Computer, Inc. (NASDAQ:SMCI), Oxford Industries, Inc. (NYSE:OXM), and Beneficial Mutual Bancorp Inc (NASDAQ:BNCL). This group of stocks’ market caps are closest to QTWO’s market cap.

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 $102 million. That figure was $36 million in QTWO’s case. Oxford Industries, Inc. (NYSE:OXM) is the most popular stock in this table. On the other hand Tennant Company (NYSE:TNC) is the least popular one with only 10 bullish hedge fund positions. Q2 Holdings Inc (NYSE:QTWO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard OXM might be a better candidate to consider taking a long position in.

Disclosure: None