AirMedia Group Inc (ADR) (NASDAQ:AMCN)‘s stock rocketed by around 44% as it started trading today. This huge move was due to the company confirmed the receipt of a Preliminary Non-Binding “Going Private” Proposal. The offer, made by a group that includes the company’s Chairman and CEO would pay a price of $6 per share to buy the outstanding shares of the company and take it private. The proposed purchase set a premium of 70.5% on the company’s share price as of the close of trading yesterday. The buyer group already holds an aggregate of 38% of the company’s outstanding shares. The board has appointed three independent directors to assist them in evaluating the proposal.
We will be looking at the hedge fund activity in this stock to understand how hedge fund managers feel about AirMedia Group Inc (ADR) (NASDAQ:AMCN)’s stock, independent of the recent news. In that sense, hedge fund sentiment was completely negative on this stock. There were 4 hedge funds that held a position in the stock at the end of 2014, but all of them sold their positions in the stock by the end of Q1, with there currently being no hedge funds from our database with a position in the stock.
Why are we interested in the activity of hedge funds and insiders at Insider Monkey? Most investors can’t outperform the stock market by individually picking stocks because stock returns aren’t evenly distributed. A randomly picked stock has only a 35% to 45% chance (depending on the investment horizon) to outperform the market. There are a few exceptions, one of which is when it comes to purchases made by corporate insiders. Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned more than 142% over the ensuing 33 months, outperforming the S&P 500 Index by nearly 83 percentage points (read the details here). The trick is focusing only on the best small-cap stock picks of funds, not their large-cap stock picks which are extensively covered by analysts and followed by almost everybody.
Beginning with insider selling and purchasing details, there were none available for this stock within our database.
Let’s focus then on the recent hedge fund activity in AirMedia Group Inc (ADR) (NASDAQ:AMCN).
How are hedge funds trading AirMedia Group Inc (ADR) (NASDAQ:AMCN)?
Hedge funds are completely negative on the stock. All four hedge funds that held positions in the stock at the end of Q4 opted to say good bye to those positions by the end of Q1.
According to Insider Monkey’s database, Hillhouse Capital Management led by Lei Zhang held the largest position in the stock at the end of 2014, with 150,460 shares worth $385,000 at that time. The second-largest position in the stock was held by Jim Simons‘ Renaissance Technologies, which had 69,128 shares valued at $177,000 at the end of Q4. Ken Griffin‘s Citadel Investment Group and Israel Englander‘s Millennium Management also had small positions in the stock at the end of the fourth quarter. But in the first quarter, all four hedge funds closed their positions.
Hedge fund activity indicates that the company isn’t in great shape or a wise investment, apart from the latest offer. But given that the stock is now under a special circumstance, we can only evaluate its current worth based on the likelihood of the purchase being accepted by the board and the company being taken private, which would provide a remaining upside potential of over 26% if so. However, shareholders would be at risk of big losses in the event the purchase is not consummated. While the offer at a 70% premium seems fair, the fact that the offer is beneath the price the stock had traded at throughout much of the last month raises doubts as to just how valuable an offer it really is, and whether it’s in the best interests of shareholders. As such, we would advise steering clear of this deal.
