SPS Commerce, Inc. (SPSC) Fell Out Of Favor With Hedge Funds?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on June 30th. We at Insider Monkey have made an extensive database of more than 873 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded SPS Commerce, Inc. (NASDAQ:SPSC) based on those filings.

Hedge fund interest in SPS Commerce, Inc. (NASDAQ:SPSC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that SPSC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Assured Guaranty Ltd. (NYSE:AGO), White Mountains Insurance Group Ltd (NYSE:WTM), and PotlatchDeltic Corporation (NASDAQ:PCH) to gather more data points.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, plant based food market is expected to explode 100-fold by 2050, so we are checking out this under-the radar stock. We go through lists like the 10 best growth stocks to buy 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 let’s take a peek at the key hedge fund action regarding SPS Commerce, Inc. (NASDAQ:SPSC).

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

At second quarter’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SPSC over the last 24 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in SPS Commerce, Inc. (NASDAQ:SPSC) was held by Renaissance Technologies, which reported holding $37.9 million worth of stock at the end of June. It was followed by Arrowstreet Capital with a $26.9 million position. Other investors bullish on the company included Shannon River Fund Management, Millennium Management, and GLG Partners. In terms of the portfolio weights assigned to each position Shannon River Fund Management allocated the biggest weight to SPS Commerce, Inc. (NASDAQ:SPSC), around 1.49% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, dishing out 0.14 percent of its 13F equity portfolio to SPSC.

Judging by the fact that SPS Commerce, Inc. (NASDAQ:SPSC) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of fund managers that slashed their entire stakes last quarter. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management sold off the largest investment of all the hedgies monitored by Insider Monkey, valued at about $1.1 million in stock, and Jinghua Yan’s TwinBeech Capital was right behind this move, as the fund sold off about $0.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to SPS Commerce, Inc. (NASDAQ:SPSC). We will take a look at Assured Guaranty Ltd. (NYSE:AGO), White Mountains Insurance Group Ltd (NYSE:WTM), PotlatchDeltic Corporation (NASDAQ:PCH), PagerDuty, Inc. (NYSE:PD), Meritage Homes Corp (NYSE:MTH), Diodes Incorporated (NASDAQ:DIOD), and M.D.C. Holdings, Inc. (NYSE:MDC). This group of stocks’ market values are similar to SPSC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AGO 11 195023 -11
WTM 17 232444 -2
PCH 28 112587 2
PD 26 656534 2
MTH 20 323510 -3
DIOD 18 155512 -3
MDC 22 51990 9
Average 20.3 246800 -0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.3 hedge funds with bullish positions and the average amount invested in these stocks was $247 million. That figure was $153 million in SPSC’s case. PotlatchDeltic Corporation (NASDAQ:PCH) is the most popular stock in this table. On the other hand Assured Guaranty Ltd. (NYSE:AGO) is the least popular one with only 11 bullish hedge fund positions. SPS Commerce, Inc. (NASDAQ:SPSC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SPSC is 56.5. 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 gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on SPSC as the stock returned 65.1% since the end of the second quarter (through 10/22) and outperformed the market by an even larger margin.

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