Is Square Inc (SQ) a Good Stock to Buy?

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 Square Inc (NYSE:SQ).

Square Inc (NYSE:SQ) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. There were 16 funds from our database bullish on the stock at the end of September. At the end of this article we will also compare SQ to other stocks including Gold Fields Limited (ADR) (NYSE:GFI), Pool Corporation (NASDAQ:POOL), and BWX Technologies Inc (NYSE:BWXT) to get a better sense of its popularity.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

Keeping this in mind, we’re going to take a gander at the fresh action regarding Square Inc (NYSE:SQ).

What have hedge funds been doing with Square Inc (NYSE:SQ)?

At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in Square, unchanged over the quarter. By comparison, nine funds held shares or bullish call options in SQ heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Dmitry Balyasny’s Balyasny Asset Management holds the number one position in Square Inc (NYSE:SQ). Balyasny Asset Management has a $43.5 million position in the stock, comprising 0.3% of its 13F portfolio. Coming in second is Point72 Asset Management, led by Steve Cohen, holding a $40.2 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish contain Anand Parekh’s Alyeska Investment Group, Principal Global Investors’ Columbus Circle Investors, and Ken Griffin’s Citadel Investment Group. 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.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually dumped their positions entirely. At the top of the heap, Christopher Lyle’s SCGE Management dumped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $22.6 million in stock, and Chase Coleman’s Tiger Global Management LLC was right behind this move, as the fund dropped about $10.7 million worth of shares.

Let’s also examine hedge fund activity in other stocks similar to Square Inc (NYSE:SQ). We will take a look at Gold Fields Limited (ADR) (NYSE:GFI), Pool Corporation (NASDAQ:POOL), BWX Technologies Inc (NYSE:BWXT), and Popular Inc (NASDAQ:BPOP). This group of stocks’ market valuations match SQ’s market valuation.

As you can see these stocks had an average of 26 funds with bullish positions and the average amount invested in these stocks was $458 million. That figure was $172 million in SQ’s case. Popular Inc (NASDAQ:BPOP) is the most popular stock in this table, while Gold Fields Limited (ADR) (NYSE:GFI) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Square Inc (NYSE:SQ) is even less popular than Gold Fields Limited (ADR) (NYSE:GFI). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: none