Should You Buy SmileDirectClub, Inc. (SDC)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards SmileDirectClub, Inc. (NASDAQ:SDC).

SmileDirectClub, Inc. (NASDAQ:SDC) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds’ portfolios at the end of March. At the end of this article we will also compare SDC to other stocks including Dorman Products Inc. (NASDAQ:DORM), ExlService Holdings, Inc. (NASDAQ:EXLS), and Progyny, Inc. (NASDAQ:PGNY) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Bill Miller

Bill Miller of Miller Value Partners

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the new hedge fund action surrounding SmileDirectClub, Inc. (NASDAQ:SDC).

What does smart money think about SmileDirectClub, Inc. (NASDAQ:SDC)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in SDC a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Is SDC A Good Stock To Buy?

The largest stake in SmileDirectClub, Inc. (NASDAQ:SDC) was held by Hillhouse Capital Management, which reported holding $13.5 million worth of stock at the end of September. It was followed by Viking Global with a $10.7 million position. Other investors bullish on the company included Miller Value Partners, Melvin Capital Management, and Coatue Management. In terms of the portfolio weights assigned to each position Kamunting Street Capital allocated the biggest weight to SmileDirectClub, Inc. (NASDAQ:SDC), around 1.11% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, dishing out 0.6 percent of its 13F equity portfolio to SDC.

Seeing as SmileDirectClub, Inc. (NASDAQ:SDC) has faced a decline in interest from hedge fund managers, it’s safe to say that there were a few funds that slashed their entire stakes by the end of the first quarter. Interestingly, Bruce Emery’s Greenvale Capital cut the biggest position of all the hedgies tracked by Insider Monkey, comprising about $27.5 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also sold off its stock, about $19.4 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as SmileDirectClub, Inc. (NASDAQ:SDC) but similarly valued. We will take a look at Dorman Products Inc. (NASDAQ:DORM), ExlService Holdings, Inc. (NASDAQ:EXLS), Progyny, Inc. (NASDAQ:PGNY), and Otter Tail Corporation (NASDAQ:OTTR). This group of stocks’ market values are closest to SDC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DORM 14 40202 1
EXLS 15 46684 -3
PGNY 10 13623 2
OTTR 12 68853 1
Average 12.75 42341 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $66 million in SDC’s case. ExlService Holdings, Inc. (NASDAQ:EXLS) is the most popular stock in this table. On the other hand Progyny, Inc. (NASDAQ:PGNY) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks SmileDirectClub, Inc. (NASDAQ:SDC) is more popular among hedge funds. 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 returned 12.2% in 2020 through June 17th but still managed to beat the market by 14.8 percentage points. Hedge funds were also right about betting on SDC as the stock returned 69.4% so far in Q2 (through June 17th) 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.