Receptos Inc (NASDAQ:RCPT) is up by around 4% in the last few days, mainly due to a report released by Wedbush on Wednesday which suggested the company could be acquired for $348 per share, a significant potential windfall of nearly 100% for investors. Yet should that be enough to get people to buy the stock, or is the recent report a little too speculative, considering the recent insider sales made by company officials, which would seem to rule out any immediate sale of the company?
We look at the hedge fund sentiment and insider sentiment in order to gauge the interest and potential of stocks. In the case of Receptos Inc (NASDAQ:RCPT), the number of hedge fund positions in the stock went down by 4 at the end of the first quarter from 38 hedge fund positions in the stock at the end of Q4. This is an 11% drop in hedge fund ownership in the stock. Hedge fund sentiment is negative, but analysts are bullish about the stock. So is this stock a buy at the moment?
General opinion is that hedge funds under perform the S&P 500 based on net returns. But we are missing something very important here. Hedge funds generally pull in strong returns from their top small-cap stocks and invest a lot of their resources into analyzing these stocks, they simply don’t take large enough positions in them relative to their portfolios to generate strong overall returns because their large-cap picks underperform the market. We share the top 15 small-cap stocks favored by the best hedge fund managers every quarter and this strategy has managed to outperform the S&P 500 every year since it was launched in August 2012, returning over 142% and beating the market by more than 82 percentage points (read the details). So we know that collective hedge fund sentiment is extremely telling and valuable.
Lets take a look at the insider sentiment now to get more insight on the stock. There were no insider purchases made in the first quarter, but as mentioned, there was a significant amount of insider selling. Director of Receptos Inc (NASDAQ:RCPT), Edward S. Torres sold 220,000 shares on Tuesday in just one such move. Torres also sold around 53,000 shares in February. This clearly shows that insider sentiment for the stock is not positive, which seems to go against the sale thesis proposed by Wedbush.
Keeping this in mind, let’s take a glance at the hedge fund action on Receptos Inc (NASDAQ:RCPT).