Did Hedge Funds Make The Right Call On Digital Turbine Inc (APPS) ?

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 Digital Turbine Inc (NASDAQ:APPS) and determine whether the smart money was really smart about this stock.

Is Digital Turbine Inc (NASDAQ:APPS) a buy, sell, or hold? Investors who are in the know were in a bullish mood. The number of long hedge fund bets rose by 2 lately. Our calculations also showed that APPS 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.

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. 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 if you have any good ideas send us an email. With all of this in mind let’s analyze the key hedge fund action surrounding Digital Turbine Inc (NASDAQ:APPS).

What does smart money think about Digital Turbine Inc (NASDAQ:APPS)?

At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in APPS a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Scott Stewart Miller’s Greenhaven Road Investment Management has the most valuable position in Digital Turbine Inc (NASDAQ:APPS), worth close to $11.2 million, accounting for 14.1% of its total 13F portfolio. Coming in second is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $5.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions comprise Michael Kaufman’s MAK Capital One, Noam Gottesman’s GLG Partners and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Greenhaven Road Investment Management allocated the biggest weight to Digital Turbine Inc (NASDAQ:APPS), around 14.09% of its 13F portfolio. Trellus Management Company is also relatively very bullish on the stock, earmarking 4.47 percent of its 13F equity portfolio to APPS.

Consequently, key money managers have been driving this bullishness. MAK Capital One, managed by Michael Kaufman, created the most outsized position in Digital Turbine Inc (NASDAQ:APPS). MAK Capital One had $4.8 million invested in the company at the end of the quarter. Adam Usdan’s Trellus Management Company also initiated a $2.5 million position during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Greg Eisner’s Engineers Gate Manager, and Jonathan Soros’s JS Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Digital Turbine Inc (NASDAQ:APPS) but similarly valued. We will take a look at America’s Car-Mart, Inc. (NASDAQ:CRMT), Puxin Limited (NYSE:NEW), Controladora Vuela Compania de Aviacion, S.A.B. de C.V. (NYSE:VLRS), and Boot Barn Holdings Inc (NYSE:BOOT). This group of stocks’ market valuations match APPS’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $25 million. That figure was $50 million in APPS’s case. Boot Barn Holdings Inc (NYSE:BOOT) is the most popular stock in this table. On the other hand Puxin Limited (NYSE:NEW) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Digital Turbine Inc (NASDAQ:APPS) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on APPS as the stock returned 191.6% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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