Is Secoo Holding Limited (SECO) Going to Burn These Hedge Funds?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Secoo Holding Limited (NASDAQ:SECO).

Is Secoo Holding Limited (NASDAQ:SECO) a buy here? The best stock pickers are in a bearish mood. The number of bullish hedge fund positions dropped by 1 recently. Our calculations also showed that SECO 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.

At the moment there are tons of signals stock market investors have at their disposal to value stocks. A pair of the most under-the-radar signals are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the top fund managers can trounce their index-focused peers by a solid margin (see the details here).

Ken Griffin

Ken Griffin of Citadel Investment Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s check out the key hedge fund action encompassing Secoo Holding Limited (NASDAQ:SECO).

What does smart money think about Secoo Holding Limited (NASDAQ:SECO)?

At the end of the first quarter, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SECO over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SECO A Good Stock To Buy?

Of the funds tracked by Insider Monkey, David Kowitz and Sheldon Kasowitz’s Indus Capital has the largest position in Secoo Holding Limited (NASDAQ:SECO), worth close to $12.9 million, corresponding to 2.2% of its total 13F portfolio. Sitting at the No. 2 spot is Pelham Capital, managed by Ross Turner, which holds a $3.5 million position; 0.5% of its 13F portfolio is allocated to the stock. In terms of the portfolio weights assigned to each position Indus Capital allocated the biggest weight to Secoo Holding Limited (NASDAQ:SECO), around 2.19% of its 13F portfolio. Pelham Capital is also relatively very bullish on the stock, setting aside 0.5 percent of its 13F equity portfolio to SECO.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified SECO as a viable investment and initiated a position in the stock.

Let’s now take a look at hedge fund activity in other stocks similar to Secoo Holding Limited (NASDAQ:SECO). We will take a look at Cutera, Inc. (NASDAQ:CUTR), Mesabi Trust (NYSE:MSB), Envirostar Inc (NYSE:EVI), and Luna Innovations Incorporated (NASDAQ:LUNA). This group of stocks’ market caps match SECO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CUTR 12 35456 -2
MSB 2 10828 -6
EVI 1 12505 -2
LUNA 12 27646 -2
Average 6.75 21609 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $17 million in SECO’s case. Cutera, Inc. (NASDAQ:CUTR) is the most popular stock in this table. On the other hand Envirostar Inc (NYSE:EVI) is the least popular one with only 1 bullish hedge fund positions. Secoo Holding Limited (NASDAQ:SECO) 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. 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 7.9% in 2020 through May 22nd and surpassed the market by 15.6 percentage points. Unfortunately SECO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SECO investors were disappointed as the stock returned -35.4% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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