Should I Buy Paylocity Holding Corp (PCTY)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Paylocity Holding Corp (NASDAQ:PCTY).

Paylocity Holding Corp (NASDAQ:PCTY) was in 27 hedge funds’ portfolios at the end of September. The all time high for this statistic is 33. PCTY investors should pay attention to an increase in support from the world’s most elite money managers recently. There were 19 hedge funds in our database with PCTY positions at the end of the second quarter. Our calculations also showed that PCTY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s take a look at the recent hedge fund action encompassing Paylocity Holding Corp (NASDAQ:PCTY).

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

At Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 42% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PCTY over the last 25 quarters. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

The largest stake in Paylocity Holding Corp (NASDAQ:PCTY) was held by Adams Street Partners, which reported holding $166.3 million worth of stock at the end of September. It was followed by Alkeon Capital Management with a $163.2 million position. Other investors bullish on the company included Echo Street Capital Management, Two Sigma Advisors, and Millennium Management. In terms of the portfolio weights assigned to each position Adams Street Partners allocated the biggest weight to Paylocity Holding Corp (NASDAQ:PCTY), around 21.35% of its 13F portfolio. Montanaro Asset Management is also relatively very bullish on the stock, setting aside 1.52 percent of its 13F equity portfolio to PCTY.

Now, key hedge funds have jumped into Paylocity Holding Corp (NASDAQ:PCTY) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, created the biggest position in Paylocity Holding Corp (NASDAQ:PCTY). Balyasny Asset Management had $27.3 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $14.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Lee Ainslie’s Maverick Capital, and Peter Muller’s PDT Partners.

Let’s check out hedge fund activity in other stocks similar to Paylocity Holding Corp (NASDAQ:PCTY). These stocks are Nomura Holdings, Inc. (NYSE:NMR), The AES Corporation (NYSE:AES), Incyte Corporation (NASDAQ:INCY), Arch Capital Group Ltd. (NASDAQ:ACGL), Smith & Nephew plc (NYSE:SNN), Avalara, Inc. (NYSE:AVLR), and Elanco Animal Health Incorporated (NYSE:ELAN). This group of stocks’ market values are similar to PCTY’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $1291 million. That figure was $740 million in PCTY’s case. The AES Corporation (NYSE:AES) is the most popular stock in this table. On the other hand Nomura Holdings, Inc. (NYSE:NMR) is the least popular one with only 6 bullish hedge fund positions. Paylocity Holding Corp (NASDAQ:PCTY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PCTY is 60.2. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 31.1% in 2021 through December 9th and surpassed the market again by 5.1 percentage points. Unfortunately PCTY wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); PCTY investors were disappointed as the stock returned -14.2% since the end of September (through 12/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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