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Should You Avoid Evolent Health Inc (EVH)?

Out of thousands of stocks that are currently traded on the market, it is difficult to determine those that can really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of over 700 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Evolent Health Inc (NYSE:EVH).

Evolent Health Inc (NYSE:EVH) has seen a decrease in enthusiasm from smart money of late. EVH was in 13 hedge funds’ portfolios at the end of September. There were 15 hedge funds in our database with EVH holdings at the end of the previous quarter. Our calculations also showed that evh isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Mario Gabelli with cereal box

We’re going to review the fresh hedge fund action surrounding Evolent Health Inc (NYSE:EVH).

What does the smart money think about Evolent Health Inc (NYSE:EVH)?

Heading into the fourth quarter of 2018, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards EVH over the last 13 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

No of Hedge Funds with EVH Positions

The largest stake in Evolent Health Inc (NYSE:EVH) was held by Millennium Management, which reported holding $59.2 million worth of stock at the end of September. It was followed by Columbus Circle Investors with a $34.2 million position. Other investors bullish on the company included Sectoral Asset Management, Casdin Capital, and GAMCO Investors.

Due to the fact that Evolent Health Inc (NYSE:EVH) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedgies that elected to cut their positions entirely in the third quarter. Intriguingly, Israel Englander’s Millennium Management dropped the biggest position of all the hedgies followed by Insider Monkey, comprising an estimated $3.4 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund said goodbye to about $1.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to Evolent Health Inc (NYSE:EVH). We will take a look at Finisar Corporation (NASDAQ:FNSR), First Merchants Corporation (NASDAQ:FRME), TowneBank (NASDAQ:TOWN), and Yirendai Ltd. (NYSE:YRD). All of these stocks’ market caps are similar to EVH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FNSR 13 119514 2
FRME 13 152575 0
TOWN 9 44046 -1
YRD 5 15068 -2
Average 10 82801 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $139 million in EVH’s case. Finisar Corporation (NASDAQ:FNSR) is the most popular stock in this table. On the other hand Yirendai Ltd. (NYSE:YRD) is the least popular one with only 5 bullish hedge fund positions. Evolent Health Inc (NYSE:EVH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard FNSR might be a better candidate to consider a long position.

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

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