Should I Buy Sprout Social, Inc. (SPT)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of Sprout Social, Inc. (NASDAQ:SPT) based on that data.

Sprout Social, Inc. (NASDAQ:SPT) has experienced an increase in support from the world’s most elite money managers lately. Sprout Social, Inc. (NASDAQ:SPT) was in 25 hedge funds’ portfolios at the end of June. The all time high for this statistic is 30. There were 24 hedge funds in our database with SPT holdings at the end of March. Our calculations also showed that SPT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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 homepage. Keeping this in mind we’re going to go over the key hedge fund action regarding Sprout Social, Inc. (NASDAQ:SPT).

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

At the end of the second quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from one quarter earlier. By comparison, 19 hedge funds held shares or bullish call options in SPT a year ago. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Zevenbergen Capital Investments was the largest shareholder of Sprout Social, Inc. (NASDAQ:SPT), with a stake worth $102 million reported as of the end of June. Trailing Zevenbergen Capital Investments was 12 West Capital Management, which amassed a stake valued at $77.8 million. Shannon River Fund Management, Night Owl Capital Management, and Citadel Investment Group 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 Diker Management allocated the biggest weight to Sprout Social, Inc. (NASDAQ:SPT), around 6.45% of its 13F portfolio. Shannon River Fund Management is also relatively very bullish on the stock, setting aside 4.96 percent of its 13F equity portfolio to SPT.

As aggregate interest increased, specific money managers have jumped into Sprout Social, Inc. (NASDAQ:SPT) headfirst. Aubrey Capital Management, managed by Andrew Dalrymple and Barry McCorkell, created the biggest position in Sprout Social, Inc. (NASDAQ:SPT). Aubrey Capital Management had $5.3 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also initiated a $5.1 million position during the quarter. The following funds were also among the new SPT investors: Matthew Hulsizer’s PEAK6 Capital Management, Israel Englander’s Millennium Management, and Mina Faltas’s Washington Harbour Partners.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Sprout Social, Inc. (NASDAQ:SPT) but similarly valued. These stocks are Daqo New Energy Corp (NYSE:DQ), TriNet Group Inc (NYSE:TNET), Goosehead Insurance, Inc. (NASDAQ:GSHD), Sterling Bancorp (NYSE:STL), Kemper Corporation (NYSE:KMPR), Novanta Inc. (NASDAQ:NOVT), and Kodiak Sciences Inc (NASDAQ:KOD). All of these stocks’ market caps match SPT’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.1 hedge funds with bullish positions and the average amount invested in these stocks was $374 million. That figure was $376 million in SPT’s case. TriNet Group Inc (NYSE:TNET) is the most popular stock in this table. On the other hand Kodiak Sciences Inc (NASDAQ:KOD) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Sprout Social, Inc. (NASDAQ:SPT) is more popular among hedge funds. Our overall hedge fund sentiment score for SPT is 81. 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. 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 returned 24% in 2021 through October 22nd but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on SPT as the stock returned 36.8% since the end of June (through 10/22) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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