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).
How are hedge funds trading Receptos Inc (NASDAQ:RCPT)?
As pointed out earlier, hedge fund sentiment was negative, with only 34 hedge fund positions in the stock at the end of the first quarter. There was 38 hedge funds with positions in the stock at the end of Q4. This indicates that many hedge funds sold some of their stakes in the stock and some hedge funds even bid good bye to the stock by selling their entire stake in the company.
Among the hedge funds tracked by Insider Monkey, Viking Global, managed by Andreas Halvorsen, holds the largest position in Receptos Inc (NASDAQ:RCPT). Viking Global hold around 951,078 Receptos shares valued at $156.8 million, which accounts for 0.6% of Viking Global’s total 13F portfolio. The second-largest holding in Receptos is by Phill Gross and Robert Atchinson of Adage Capital Management, with 482,979 shares at $79.6 million. This accounts for 0.2% of its 13F portfolio. Other hedgies that are bullish comprise Israel Englander‘s Millennium Management, Bihua Chen’s Cormorant Asset Management, and Jacob Gottlieb’s Visium Asset Management.
Declining interest in the stock by hedge funds might suggest that some hedge funds decided to bid good bye to the stock by selling their entire stake in the company. It’s worth mentioning that Zach Schreiber’s Point State Capital dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey. Zach Schreiber’s hedge fund sold all 385,000 shares in previously held in Receptos. Jason Karp of Tourbillon Capital Partners also sold all of his 385,000 Receptos shares, which were valued at $47.2 million at the end of 2014. These bearish behaviors are interesting, as total hedge fund interest was cut by 4 funds heading into Q2.
Overall insider sentiment and hedge fund sentiment was negative for Receptos Inc (NASDAQ:RCPT), while analysts are bullish, though perhaps in a broadly speculative way. Despite the bullish analyst price targets, we don’t recommend buying the stock at this time.