Is SPSC A Good Stock To Buy Now?

In this article we will take a look at whether hedge funds think SPS Commerce, Inc. (NASDAQ:SPSC) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is SPSC a good stock to buy now? SPS Commerce, Inc. (NASDAQ:SPSC) was in 14 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 24. SPSC has experienced a decrease in hedge fund sentiment lately. There were 19 hedge funds in our database with SPSC positions at the end of the second quarter. Our calculations also showed that SPSC isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

If you’d ask most shareholders, hedge funds are assumed to be unimportant, outdated investment vehicles of yesteryear. While there are more than 8000 funds with their doors open at present, We choose to focus on the aristocrats of this group, approximately 850 funds. These investment experts orchestrate bulk of the hedge fund industry’s total capital, and by tailing their highest performing picks, Insider Monkey has discovered several investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s review the recent hedge fund action regarding SPS Commerce, Inc. (NASDAQ:SPSC).

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

At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SPSC over the last 21 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Renaissance Technologies, founded by Jim Simons, holds the largest position in SPS Commerce, Inc. (NASDAQ:SPSC). Renaissance Technologies has a $62.8 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Noam Gottesman of GLG Partners, with a $27.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that are bullish contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, John Overdeck and David Siegel’s Two Sigma Advisors and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Prescott Group Capital Management allocated the biggest weight to SPS Commerce, Inc. (NASDAQ:SPSC), around 0.17% of its 13F portfolio. GLG Partners is also relatively very bullish on the stock, earmarking 0.11 percent of its 13F equity portfolio to SPSC.

Since SPS Commerce, Inc. (NASDAQ:SPSC) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of hedgies that slashed their positions entirely last quarter. Interestingly, Chuck Royce’s Royce & Associates dropped the biggest position of the 750 funds followed by Insider Monkey, worth close to $3.4 million in stock. Ken Griffin’s fund, Citadel Investment Group, also cut its stock, about $1.6 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 5 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to SPS Commerce, Inc. (NASDAQ:SPSC). We will take a look at Box, Inc. (NYSE:BOX), Franklin Electric Co. (NASDAQ:FELE), Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL), Capri Holdings Limited (NYSE:CPRI), Holdings Inc (NASDAQ:ALRM), Amkor Technology, Inc. (NASDAQ:AMKR), and Casella Waste Systems Inc. (NASDAQ:CWST). All of these stocks’ market caps are similar to SPSC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BOX 41 582012 8
FELE 19 229763 4
CBRL 29 216139 7
CPRI 36 426536 8
ALRM 24 215299 0
AMKR 27 98077 4
CWST 17 145606 1
Average 27.6 273347 4.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.6 hedge funds with bullish positions and the average amount invested in these stocks was $273 million. That figure was $148 million in SPSC’s case. Box, Inc. (NYSE:BOX) is the most popular stock in this table. On the other hand Casella Waste Systems Inc. (NASDAQ:CWST) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks SPS Commerce, Inc. (NASDAQ:SPSC) is even less popular than CWST. Our overall hedge fund sentiment score for SPSC is 17.5. 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. Hedge funds clearly dropped the ball on SPSC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on SPSC as the stock returned 28.7% since Q3 (through December 8th) and outperformed the market by an even larger margin.

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