Should You Avoid Rapid7 Inc (RPD)?

It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 24.4% during the first 9 months of 2019 and outperformed the S&P 500 ETF by 4 percentage points. We are done processing the latest 13f filings and in this article we will study how hedge fund sentiment towards Rapid7 Inc (NASDAQ:RPD) changed during the first quarter.

Rapid7 Inc (NASDAQ:RPD) investors should pay attention to a decrease in hedge fund sentiment in recent months. RPD was in 25 hedge funds’ portfolios at the end of the second quarter of 2019. There were 27 hedge funds in our database with RPD holdings at the end of the previous quarter. Our calculations also showed that RPD isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AlphaOne Capital Partners' Returns, AUM and Holdings

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s analyze the latest hedge fund action regarding Rapid7 Inc (NASDAQ:RPD).

What does smart money think about Rapid7 Inc (NASDAQ:RPD)?

At Q2’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards RPD over the last 16 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


Among these funds, SQN Investors held the most valuable stake in Rapid7 Inc (NASDAQ:RPD), which was worth $94.1 million at the end of the second quarter. On the second spot was Alkeon Capital Management which amassed $66.2 million worth of shares. Moreover, Columbus Circle Investors, Citadel Investment Group, and DSAM Partners were also bullish on Rapid7 Inc (NASDAQ:RPD), allocating a large percentage of their portfolios to this stock.

Because Rapid7 Inc (NASDAQ:RPD) has witnessed a decline in interest from the smart money, we can see that there was a specific group of hedge funds who were dropping their entire stakes last quarter. It’s worth mentioning that Brian Ashford-Russell and Tim Woolley’s Polar Capital sold off the largest stake of the “upper crust” of funds watched by Insider Monkey, valued at about $7.5 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund dropped about $2.2 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Rapid7 Inc (NASDAQ:RPD). These stocks are American States Water Co (NYSE:AWR), Washington Federal Inc. (NASDAQ:WAFD), Agios Pharmaceuticals Inc (NASDAQ:AGIO), and AVX Corporation (NYSE:AVX). All of these stocks’ market caps are similar to RPD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AWR 14 67350 -1
WAFD 9 59821 -6
AGIO 18 130908 -4
AVX 11 80537 0
Average 13 84654 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $386 million in RPD’s case. Agios Pharmaceuticals Inc (NASDAQ:AGIO) is the most popular stock in this table. On the other hand Washington Federal Inc. (NASDAQ:WAFD) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Rapid7 Inc (NASDAQ:RPD) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately RPD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RPD were disappointed as the stock returned -21.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.

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