Did Hedge Funds Make The Right Call On 8×8, Inc. (EGHT)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded 8×8, Inc. (NASDAQ:EGHT) and determine whether the smart money was really smart about this stock.

8×8, Inc. (NASDAQ:EGHT) was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. EGHT has experienced an increase in hedge fund sentiment in recent months. There were 14 hedge funds in our database with EGHT positions at the end of the previous quarter. Our calculations also showed that EGHT 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.

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 58 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.

Paul Singer of Elliott Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s take a peek at the fresh hedge fund action encompassing 8×8, Inc. (NASDAQ:EGHT).

Hedge fund activity in 8×8, Inc. (NASDAQ:EGHT)

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 43% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EGHT over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Daniel Patrick Gibson’s Sylebra Capital Management has the number one position in 8×8, Inc. (NASDAQ:EGHT), worth close to $124.7 million, amounting to 5.1% of its total 13F portfolio. The second largest stake is held by Tiger Global Management LLC, managed by Chase Coleman, which holds a $68.6 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism encompass Alok Agrawal’s Bloom Tree Partners, Ken Griffin’s Citadel Investment Group and Brian Ashford-Russell and Tim Woolley’s Polar Capital. In terms of the portfolio weights assigned to each position Sylebra Capital Management allocated the biggest weight to 8×8, Inc. (NASDAQ:EGHT), around 5.11% of its 13F portfolio. Bloom Tree Partners is also relatively very bullish on the stock, setting aside 5 percent of its 13F equity portfolio to EGHT.

As aggregate interest increased, some big names were breaking ground themselves. Bloom Tree Partners, managed by Alok Agrawal, assembled the most valuable position in 8×8, Inc. (NASDAQ:EGHT). Bloom Tree Partners had $35.1 million invested in the company at the end of the quarter. Mark Coe’s Intrinsic Edge Capital also made a $14.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management, Paul Singer’s Elliott Investment Management, and Brandon Haley’s Holocene Advisors.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as 8×8, Inc. (NASDAQ:EGHT) but similarly valued. These stocks are NBT Bancorp Inc. (NASDAQ:NBTB), Domtar Corporation (NYSE:UFS), CareTrust REIT Inc (NASDAQ:CTRE), and Pacira Biosciences Inc (NASDAQ:PCRX). This group of stocks’ market valuations are closest to EGHT’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $369 million in EGHT’s case. Pacira Biosciences Inc (NASDAQ:PCRX) is the most popular stock in this table. On the other hand NBT Bancorp Inc. (NASDAQ:NBTB) is the least popular one with only 4 bullish hedge fund positions. 8×8, Inc. (NASDAQ:EGHT) 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately EGHT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on EGHT were disappointed as the stock returned 18.5% 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.

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