Dropbox, Inc. (DBX): Are Hedge Funds Right About This Stock?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Dropbox, Inc. (NASDAQ:DBX).

Dropbox, Inc. (NASDAQ:DBX) has experienced an increase in enthusiasm from smart money in recent months. Dropbox, Inc. (NASDAQ:DBX) was in 39 hedge funds’ portfolios at the end of June. The all time high for this statistic is 51. There were 31 hedge funds in our database with DBX positions at the end of the first quarter. Our calculations also showed that DBX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Christopher R. Hansen of Valiant Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Now let’s take a look at the fresh hedge fund action regarding Dropbox, Inc. (NASDAQ:DBX).

Do Hedge Funds Think DBX Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 26% from one quarter earlier. By comparison, 51 hedge funds held shares or bullish call options in DBX a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Dropbox, Inc. (NASDAQ:DBX), with a stake worth $244.5 million reported as of the end of June. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $117.9 million. Elliott Investment Management, VGI Partners, and Valiant Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position VGI Partners allocated the biggest weight to Dropbox, Inc. (NASDAQ:DBX), around 6.68% of its 13F portfolio. Greenhouse Funds is also relatively very bullish on the stock, setting aside 4.94 percent of its 13F equity portfolio to DBX.

As one would reasonably expect, specific money managers have been driving this bullishness. Elliott Investment Management, managed by Paul Singer, assembled the largest position in Dropbox, Inc. (NASDAQ:DBX). Elliott Investment Management had $90.9 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $10.5 million position during the quarter. The other funds with new positions in the stock are Michel Massoud’s Melqart Asset Management, Israel Englander’s Millennium Management, and The Motley Fool’s 1623 Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Dropbox, Inc. (NASDAQ:DBX) but similarly valued. We will take a look at Medical Properties Trust, Inc. (NYSE:MPW), Lamb Weston Holdings, Inc. (NYSE:LW), Chegg Inc (NYSE:CHGG), Trex Company, Inc. (NYSE:TREX), Grifols SA (NASDAQ:GRFS), The Toro Company (NYSE:TTC), and Newell Brands Inc. (NASDAQ:NWL). This group of stocks’ market caps are similar to DBX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $732 million. That figure was $929 million in DBX’s case. Chegg Inc (NYSE:CHGG) is the most popular stock in this table. On the other hand Grifols SA (NASDAQ:GRFS) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Dropbox, Inc. (NASDAQ:DBX) is more popular among hedge funds. Our overall hedge fund sentiment score for DBX is 82.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Unfortunately DBX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DBX were disappointed as the stock returned -6% since the end of the second quarter (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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