Do Hedge Funds Love Key Energy Services, Inc. (KEG)?

Is Key Energy Services, Inc. (NYSE:KEG) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Key Energy Services, Inc. an excellent investment now? The smart money is turning less bullish. The number of bullish hedge fund bets fell by 5 in recent months. KEG was in 15 hedge funds’ portfolios at the end of September. There were 20 hedge funds in our database with KEG holdings at the end of the previous quarter. 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 North American Energy Partners Inc.(USA) (NYSE:NOA), Health Insurance Innovations Inc (NASDAQ:HIIQ), and Spark Networks Inc (NYSEMKT:LOV) to gather more data points.

If you’d ask most stock holders, hedge funds are perceived as underperforming, outdated investment tools of yesteryear. While there are over 8000 funds trading at the moment, Our experts choose to focus on the top tier of this group, approximately 700 funds. It is estimated that this group of investors administer the lion’s share of the smart money’s total capital, and by keeping track of their top picks, Insider Monkey has discovered many investment strategies that have historically beaten the broader indices. Insider Monkey’s small-cap hedge fund strategy outstripped the S&P 500 index by 12 percentage points per year for a decade in their back tests.

With all of this in mind, let’s view the key action encompassing Key Energy Services, Inc. (NYSE:KEG).

What does the smart money think about Key Energy Services, Inc. (NYSE:KEG)?

At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop of 25% from the previous quarter. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, MHR Fund Management, managed by Mark Rachesky, holds the biggest position in Key Energy Services, Inc. (NYSE:KEG), worth an estimated $8.2 million and comprising 0.4% of its 13F portfolio. On MHR Fund Management’s heels is Citadel Investment Group, led by Ken Griffin, holding a $3.5 million position; less than 0.1% of its 13F portfolio is allocated to the company. Other peers with similar optimism include Jim Simons’s Renaissance Technologies, Richard S. Pzena’s Pzena Investment Management and Chuck Royce’s Royce & Associates.

Judging by the fact that Key Energy Services, Inc. (NYSE:KEG) has experienced declining sentiment from the smart money, it’s easy to see that there is a sect of hedge funds who sold off their positions entirely last quarter. It’s worth mentioning that Malcolm Fairbairn’s Ascend Capital said goodbye to the biggest investment of the “upper crust” of funds followed by Insider Monkey, worth an estimated $2.2 million in stock. Robert Henry Lynch’s fund, Aristeia Capital, also said goodbye to a big part of its holding, about $1.7 million worth of shares. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Key Energy Services, Inc. (NYSE:KEG). These stocks are North American Energy Partners Inc.(USA) (NYSE:NOA), Health Insurance Innovations Inc (NASDAQ:HIIQ), Spark Networks Inc (NYSEMKT:LOV), and Digirad Corporation (NASDAQ:DRAD). This group of stocks’ market caps match KEG’s market cap.

As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was also $15 million in KEG’s case, which is not a very good sign. Spark Networks Inc (NYSEMKT:LOV) is the most popular stock in this table, while Health Insurance Innovations Inc (NASDAQ:HIIQ) is the laggard with only 4 bullish hedge fund positions. Compared to these stocks Key Energy Services, Inc. (NYSE:KEG) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.