Why is Investor Confidence in TherapeuticsMD Inc (TXMD) so Low?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve our odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small-cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small-cap picks. In this article, we use hedge fund filing data to analyze TherapeuticsMD Inc (OTC:TXMD).

Is TherapeuticsMD Inc (OTC:TXMD) a superb investment now? Investors who are in the know are not overly optimistic. The number of bullish hedge fund positions stayed the same which is a slightly negative development in our experience. TherapeuticsMD Inc (OTC:TXMD) was in 13 hedge funds’ portfolios at the end of the third quarter of 2015. There were 13 hedge funds in our database with TherapeuticsMD Inc (OTC:TXMD) positions at the end of the previous quarter. At the end of this article we will also compare TXMD to other stocks including MBIA Inc. (NYSE:MBI), Outerwall Inc (NASDAQ:OUTR), and Meritor Inc (NYSE:MTOR) to get a better sense of its popularity.

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Today there are plenty of formulas investors employ to size up publicly traded companies. A pair of the most underrated formulas are hedge fund and insider trading indicators. our experts have shown that, historically, those who follow the best picks of the elite money managers can beat the broader indices by a very impressive margin (see the details here).

Keeping this in mind, let’s review the recent action regarding TherapeuticsMD Inc (OTC:TXMD).

Hedge fund activity in TherapeuticsMD Inc (OTC:TXMD)

Heading into Q4, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, unchanged from the previous quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Israel Englander’s Millennium Management has the biggest position in TherapeuticsMD Inc (OTC:TXMD), worth close to $11.9 million, amounting to less than 0.1% of its total 13F portfolio. Sitting in the number two spot is RA Capital Management, led by Peter Kolchinsky, holding an $8.9 million position; 1.3% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish comprise Hal Mintz’s Sabby Capital, and Kris Jenner, Gordon Bussard, and Graham McPhail’s Rock Springs Capital Management.

Judging by the fact that TherapeuticsMD Inc (OTC:TXMD) has faced declining sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of money managers who sold off their full holdings heading into Q4. It’s worth mentioning that Ken Greenberg and David Kim’s Ghost Tree Capital dumped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, valued at about $3.1 million in stock, while Richard Driehaus’ Driehaus Capital was right behind this move, as the fund said goodbye to about $0.5 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to TherapeuticsMD Inc (OTC:TXMD). We will take a look at MBIA Inc. (NYSE:MBI), Outerwall Inc (NASDAQ:OUTR), Meritor Inc (NYSE:MTOR), and McDermott International (NYSE:MDR). This group of stocks’ market caps resemble TXMD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MBI 30 263054 2
OUTR 28 388498 -2
MTOR 25 263042 0
MDR 21 149602 1

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $266 million.That figure was $47 million in TherapeuticsMD Inc (OTC:TXMD)’s case. MBIA Inc. (NYSE:MBI) is the most popular stock in this table. On the other hand McDermott International (NYSE:MDR) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks TherapeuticsMD Inc (OTC:TXMD) is even less popular than McDermott. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.