Should I Avoid Perdoceo Education Corporation (PRDO)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Perdoceo Education Corporation (NASDAQ:PRDO) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Perdoceo Education Corporation (NASDAQ:PRDO) has experienced a decrease in enthusiasm from smart money of late. Perdoceo Education Corporation (NASDAQ:PRDO) was in 19 hedge funds’ portfolios at the end of June. The all time high for this statistics is 24. Our calculations also showed that PRDO isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

In the eyes of most traders, hedge funds are viewed as unimportant, outdated investment tools of the past. While there are over 8000 funds with their doors open at present, We look at the leaders of this group, around 850 funds. Most estimates calculate that this group of people orchestrate the majority of the hedge fund industry’s total capital, and by tailing their inimitable picks, Insider Monkey has unearthed many investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Peter Algert of Algert Global

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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let’s analyze the fresh hedge fund action surrounding Perdoceo Education Corporation (NASDAQ:PRDO).

What does smart money think about Perdoceo Education Corporation (NASDAQ:PRDO)?

At Q2’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PRDO over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Perdoceo Education Corporation (NASDAQ:PRDO), with a stake worth $80.3 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $31.4 million. Arrowstreet Capital, Two Sigma Advisors, and Marshall Wace LLP 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 Zebra Capital Management allocated the biggest weight to Perdoceo Education Corporation (NASDAQ:PRDO), around 0.47% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, designating 0.44 percent of its 13F equity portfolio to PRDO.

Judging by the fact that Perdoceo Education Corporation (NASDAQ:PRDO) has experienced a decline in interest from the smart money, logic holds that there were a few fund managers who were dropping their full holdings in the second quarter. At the top of the heap, Ken Grossman and Glen Schneider’s SG Capital Management cut the largest position of the 750 funds watched by Insider Monkey, totaling close to $13.2 million in stock. Chet Kapoor’s fund, Tenzing Global Investors, also said goodbye to its stock, about $7 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 4 funds in the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Perdoceo Education Corporation (NASDAQ:PRDO) but similarly valued. We will take a look at Digital Turbine Inc (NASDAQ:APPS), New Frontier Health Corporation (NYSE:NFH), Radware Ltd. (NASDAQ:RDWR), Aimmune Therapeutics Inc (NASDAQ:AIMT), Freedom Holding Corp. (NASDAQ:FRHC), The Providence Service Corporation (NASDAQ:PRSC), and Maxar Technologies Inc (NYSE:MAXR). This group of stocks’ market valuations match PRDO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APPS 18 128145 -4
NFH 15 170258 -1
RDWR 13 251573 3
AIMT 20 151391 2
FRHC 3 15935 0
PRSC 12 259513 1
MAXR 15 112490 -1
Average 13.7 155615 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.7 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $166 million in PRDO’s case. Aimmune Therapeutics Inc (NASDAQ:AIMT) is the most popular stock in this table. On the other hand Freedom Holding Corp. (NASDAQ:FRHC) is the least popular one with only 3 bullish hedge fund positions. Perdoceo Education Corporation (NASDAQ:PRDO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PRDO is 71.8. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately PRDO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PRDO were disappointed as the stock returned -23.2% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.