Was The Smart Money Right About Paysafe Limited (PSFE)?

At Insider Monkey, we pore over the filings of nearly 873 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of June 30th. In this article, we will use that wealth of knowledge to determine whether or not Paysafe Limited (NYSE:PSFE) makes for a good investment right now.

Is Paysafe Limited (NYSE:PSFE) a safe investment now? The smart money was turning bullish. The number of bullish hedge fund bets went up by 9 in recent months. Paysafe Limited (NYSE:PSFE) was in 50 hedge funds’ portfolios at the end of June. The all time high for this statistic was previously 41. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that PSFE isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 41 hedge funds in our database with PSFE holdings at the end of March.

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. 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 S&P 500 ETFs by 79 percentage points since March 2017 (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.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. We go through lists like the 10 best EV stocks 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. Now let’s take a look at the recent hedge fund action surrounding Paysafe Limited (NYSE:PSFE).

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

At the end of June, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the first quarter of 2020. On the other hand, there were a total of 0 hedge funds with a bullish position in PSFE a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Dan Loeb’s Third Point has the number one position in Paysafe Limited (NYSE:PSFE), worth close to $502.6 million, amounting to 2.9% of its total 13F portfolio. Coming in second is Suvretta Capital Management, led by Aaron Cowen, holding a $156.4 million position; 2.3% of its 13F portfolio is allocated to the company. Some other members of the smart money that hold long positions include David Tepper’s Appaloosa Management LP, Seth Rosen’s Nitorum Capital and Joshua Friedman and Mitchell Julis’s Canyon Capital Advisors. In terms of the portfolio weights assigned to each position Nitorum Capital allocated the biggest weight to Paysafe Limited (NYSE:PSFE), around 3.06% of its 13F portfolio. Third Point is also relatively very bullish on the stock, setting aside 2.94 percent of its 13F equity portfolio to PSFE.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Nitorum Capital, managed by Seth Rosen, initiated the most valuable position in Paysafe Limited (NYSE:PSFE). Nitorum Capital had $67.2 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $11.9 million position during the quarter. The other funds with brand new PSFE positions are Paul Marshall and Ian Wace’s Marshall Wace LLP, Joe DiMenna’s ZWEIG DIMENNA PARTNERS, and Leon Shaulov’s Maplelane Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Paysafe Limited (NYSE:PSFE) but similarly valued. These stocks are CyrusOne Inc (NASDAQ:CONE), Flex Ltd. (NASDAQ:FLEX), Commerce Bancshares, Inc. (NASDAQ:CBSH), Aegon N.V. (NYSE:AEG), West Fraser Timber Co. Ltd. (NYSE:WFG), Fiverr International Ltd. (NYSE:FVRR), and WEX Inc (NYSE:WEX). All of these stocks’ market caps are closest to PSFE’s market cap.

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As you can see these stocks had an average of 23.7 hedge funds with bullish positions and the average amount invested in these stocks was $509 million. That figure was $1125 million in PSFE’s case. Flex Ltd. (NASDAQ:FLEX) is the most popular stock in this table. On the other hand Aegon N.V. (NYSE:AEG) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Paysafe Limited (NYSE:PSFE) is more popular among hedge funds. Our overall hedge fund sentiment score for PSFE is 90. 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 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. Unfortunately PSFE wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PSFE were disappointed as the stock returned -38.6% since the end of the second quarter (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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