Is VAPO A Good Stock To Buy Now?

Is Vapotherm (VAPO) a good stock to buy now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Hedge fund interest in Vapotherm, Inc. (NYSE:VAPO) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that VAPO 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). At the end of this article we will also compare VAPO to other stocks including Criteo SA (NASDAQ:CRTO), PAR Technology Corporation (NYSE:PAR), and Guess’, Inc. (NYSE:GES) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 66 percentage points since March 2017 (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.

Joseph Edelman of Perceptive Advisors

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 we’re going to take a gander at the recent hedge fund action regarding Vapotherm, Inc. (NYSE:VAPO).

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

At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VAPO over the last 21 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is VAPO A Good Stock To Buy?

Among these funds, Parian Global Management held the most valuable stake in Vapotherm, Inc. (NYSE:VAPO), which was worth $66.9 million at the end of the third quarter. On the second spot was Slate Path Capital which amassed $35.4 million worth of shares. ThornTree Capital Partners, Renaissance Technologies, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Parian Global Management allocated the biggest weight to Vapotherm, Inc. (NYSE:VAPO), around 21.21% of its 13F portfolio. ThornTree Capital Partners is also relatively very bullish on the stock, earmarking 2.14 percent of its 13F equity portfolio to VAPO.

Judging by the fact that Vapotherm, Inc. (NYSE:VAPO) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of money managers who were dropping their positions entirely by the end of the third quarter. At the top of the heap, Joseph Edelman’s Perceptive Advisors dumped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $54.9 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund sold off about $31.3 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Vapotherm, Inc. (NYSE:VAPO) but similarly valued. We will take a look at Criteo SA (NASDAQ:CRTO), PAR Technology Corporation (NYSE:PAR), Guess’, Inc. (NYSE:GES), Antero Resources Corp (NYSE:AR), Rosetta Stone Inc (NYSE:RST), Costamare Inc (NYSE:CMRE), and Axcelis Technologies Inc (NASDAQ:ACLS). This group of stocks’ market caps are similar to VAPO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRTO 11 59115 0
PAR 12 281827 2
GES 17 51014 -1
AR 21 203978 0
RST 26 191347 5
CMRE 13 32878 0
ACLS 20 88812 0
Average 17.1 129853 0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.1 hedge funds with bullish positions and the average amount invested in these stocks was $130 million. That figure was $161 million in VAPO’s case. Rosetta Stone Inc (NYSE:RST) is the most popular stock in this table. On the other hand Criteo SA (NASDAQ:CRTO) is the least popular one with only 11 bullish hedge fund positions. Vapotherm, Inc. (NYSE:VAPO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VAPO is 58.3. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 30.7% in 2020 through December 14th and beat the market again by 15.8 percentage points. Unfortunately VAPO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on VAPO were disappointed as the stock returned -6.9% since the end of September (through 12/14) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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