Was The Smart Money Right About Dumping Coupa Software Incorporated (COUP)?

Is Coupa Software Incorporated (NASDAQ:COUP) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Coupa Software Incorporated (NASDAQ:COUP) has seen a decrease in support from the world’s most elite money managers lately. Coupa Software Incorporated (NASDAQ:COUP) was in 50 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 66. Our calculations also showed that COUP isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

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 56 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.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now let’s go over the new hedge fund action regarding Coupa Software Incorporated (NASDAQ:COUP).

What does smart money think about Coupa Software Incorporated (NASDAQ:COUP)?

At second quarter’s end, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards COUP over the last 20 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.

Is COUP A Good Stock To Buy?

The largest stake in Coupa Software Incorporated (NASDAQ:COUP) was held by Lone Pine Capital, which reported holding $588.5 million worth of stock at the end of September. It was followed by Alkeon Capital Management with a $501 million position. Other investors bullish on the company included Whale Rock Capital Management, Sylebra Capital Management, and D E Shaw. In terms of the portfolio weights assigned to each position Center Lake Capital allocated the biggest weight to Coupa Software Incorporated (NASDAQ:COUP), around 19.9% of its 13F portfolio. Crosslink Capital is also relatively very bullish on the stock, setting aside 15.71 percent of its 13F equity portfolio to COUP.

Judging by the fact that Coupa Software Incorporated (NASDAQ:COUP) has faced declining sentiment from hedge fund managers, it’s safe to say that there were a few fund managers who sold off their entire stakes last quarter. Intriguingly, Robert Pitts’s Steadfast Capital Management cut the largest investment of all the hedgies followed by Insider Monkey, totaling about $120.5 million in stock, and Christopher Lyle’s SCGE Management was right behind this move, as the fund sold off about $110.9 million worth. These transactions are important to note, as total hedge fund interest fell by 16 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Coupa Software Incorporated (NASDAQ:COUP) but similarly valued. We will take a look at The Royal Bank of Scotland Group plc (NYSE:RBS), Arthur J. Gallagher & Co. (NYSE:AJG), Ameriprise Financial, Inc. (NYSE:AMP), MPLX LP (NYSE:MPLX), Nutrien Ltd. (NYSE:NTR), Citrix Systems, Inc. (NASDAQ:CTXS), and First Republic Bank (NYSE:FRC). This group of stocks’ market values are closest to COUP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RBS 5 5012 0
AJG 29 234663 1
AMP 28 707002 2
MPLX 13 179753 2
NTR 22 490722 0
CTXS 36 1146265 -2
FRC 37 1192635 9
Average 24.3 565150 1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.3 hedge funds with bullish positions and the average amount invested in these stocks was $565 million. That figure was $3003 million in COUP’s case. First Republic Bank (NYSE:FRC) is the most popular stock in this table. On the other hand Royal Bank of Scotland Group plc (NYSE:RBS) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Coupa Software Incorporated (NASDAQ:COUP) is more popular among hedge funds. Our overall hedge fund sentiment score for COUP is 61.7. 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 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 gained 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Unfortunately COUP wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on COUP were disappointed as the stock returned 9% since the end of the second quarter (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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