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Were Hedge Funds Right About Slack Technologies Inc (WORK)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Slack Technologies Inc (NYSE:WORK) based on that data and determine whether they were really smart about the stock.

Is Slack Technologies Inc (NYSE:WORK) an exceptional investment now? The smart money was turning bullish. The number of long hedge fund positions improved by 2 in recent months. Our calculations also showed that WORK isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 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.

Colin Moran Abdiel Capital

Colin Moran of Abdiel Capital Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind let’s take a glance at the fresh hedge fund action encompassing Slack Technologies Inc (NYSE:WORK).

How are hedge funds trading Slack Technologies Inc (NYSE:WORK)?

At the end of the first quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards WORK over the last 18 quarters. 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 WORK A Good Stock To Buy?

Among these funds, Abdiel Capital Advisors held the most valuable stake in Slack Technologies Inc (NYSE:WORK), which was worth $162.3 million at the end of the third quarter. On the second spot was Light Street Capital which amassed $109.5 million worth of shares. 12 West Capital Management, D E Shaw, and PEAK6 Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Abdiel Capital Advisors allocated the biggest weight to Slack Technologies Inc (NYSE:WORK), around 7.59% of its 13F portfolio. Light Street Capital is also relatively very bullish on the stock, designating 5.76 percent of its 13F equity portfolio to WORK.

Now, key hedge funds have been driving this bullishness. Abdiel Capital Advisors, managed by Colin Moran, created the largest position in Slack Technologies Inc (NYSE:WORK). Abdiel Capital Advisors had $162.3 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $38.1 million position during the quarter. The following funds were also among the new WORK investors: Bijan Modanlou, Joseph Bou-Saba, and Jayaveera Kodali’s Alta Park Capital, Andrew Sandler’s Sandler Capital Management, and Greg Eisner’s Engineers Gate Manager.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Slack Technologies Inc (NYSE:WORK) but similarly valued. We will take a look at Chewy, Inc. (NYSE:CHWY), ORIX Corporation (NYSE:IX), Akamai Technologies, Inc. (NASDAQ:AKAM), and The Cooper Companies, Inc. (NYSE:COO). All of these stocks’ market caps are closest to WORK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CHWY 36 493004 1
IX 4 6659 -2
AKAM 40 757103 4
COO 25 931667 -3
Average 26.25 547108 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $547 million. That figure was $465 million in WORK’s case. Akamai Technologies, Inc. (NASDAQ:AKAM) is the most popular stock in this table. On the other hand ORIX Corporation (NYSE:IX) is the least popular one with only 4 bullish hedge fund positions. Slack Technologies Inc (NYSE:WORK) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately WORK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WORK were disappointed as the stock returned 15.8% during the same time period 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 many of these stocks already outperformed the market so far this year.

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