Is SPS Commerce, Inc. (NASDAQ: SPSC ) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
SPS Commerce, Inc. (NASDAQ: SPSC ) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 19 hedge funds' portfolios at the end of the first quarter of 2019. 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 Plexus Corp. (NASDAQ: PLXS ), Scientific Games Corp (NASDAQ: SGMS ), and Anixter International Inc. (NYSE: AXE ) to gather more data points.
In today’s marketplace there are plenty of indicators investors have at their disposal to appraise their holdings. A couple of the most useful indicators are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the elite money managers can outperform their index-focused peers by a healthy amount ( see the details here ).
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman, GLG Partners[/caption]
Let's analyze the key hedge fund action encompassing SPS Commerce, Inc. (NASDAQ: SPSC ).
How have hedgies been trading SPS Commerce, Inc. (NASDAQ:SPSC)?
At Q1's end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2018. By comparison, 18 hedge funds held shares or bullish call options in SPSC 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.
Among these funds, Renaissance Technologies held the most valuable stake in SPS Commerce, Inc. (NASDAQ:SPSC), which was worth $50.8 million at the end of the first quarter. On the second spot was D E Shaw which amassed $25.7 million worth of shares. Moreover, Arrowstreet Capital, AQR Capital Management, and GLG Partners were also bullish on SPS Commerce, Inc. (NASDAQ:SPSC), allocating a large percentage of their portfolios to this stock.
Due to the fact that SPS Commerce, Inc. (NASDAQ:SPSC) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of money managers who were dropping their entire stakes in the third quarter. At the top of the heap, David Harding's Winton Capital Management dumped the largest position of all the hedgies followed by Insider Monkey, worth about $10.5 million in call options. Matthew Hulsizer's fund, PEAK6 Capital Management , also dumped its call options, about $8.7 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as SPS Commerce, Inc. (NASDAQ:SPSC) but similarly valued. These stocks are Plexus Corp. (NASDAQ: PLXS ), Scientific Games Corp (NASDAQ: SGMS ), Anixter International Inc. (NYSE: AXE ), and Seaspan Corporation (NYSE: SSW ). All of these stocks' market caps are similar to SPSC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLXS,9,49518,-5 SGMS,28,604918,2 AXE,23,258461,9 SSW,9,683349,-3 Average,17.25,399062,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $399 million. That figure was $175 million in SPSC's case. Scientific Games Corp (NASDAQ: SGMS ) is the most popular stock in this table. On the other hand Plexus Corp. (NASDAQ: PLXS ) is the least popular one with only 9 bullish hedge fund positions. SPS Commerce, Inc. (NASDAQ:SPSC) 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately SPSC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SPSC were disappointed as the stock returned -2.4% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey .