Is Evoqua Water Technologies Corp. (NYSE:AQUA) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from industry insiders. They sometimes fail miserably but historically their consensus stock picks outperformed the market after adjusting for known risk factors.
Is Evoqua Water Technologies Corp. (NYSE:AQUA) a buy here? Prominent investors are selling. The number of long hedge fund positions retreated by 1 lately. Our calculations also showed that AQUA isn’t among the 30 most popular stocks among hedge funds. AQUA was in 11 hedge funds’ portfolios at the end of the third quarter of 2018. There were 12 hedge funds in our database with AQUA positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a look at the recent hedge fund action surrounding Evoqua Water Technologies Corp. (NYSE:AQUA).
How are hedge funds trading Evoqua Water Technologies Corp. (NYSE:AQUA)?
At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 11 hedge funds with a bullish position in AQUA at the beginning of this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Evoqua Water Technologies Corp. (NYSE:AQUA) was held by Ascend Capital, which reported holding $16.6 million worth of stock at the end of September. It was followed by Balyasny Asset Management with a $13.1 million position. Other investors bullish on the company included Adi Capital Management, Citadel Investment Group, and Diker Management.
Since Evoqua Water Technologies Corp. (NYSE:AQUA) has faced falling interest from the entirety of the hedge funds we track, we can see that there exists a select few hedge funds that elected to cut their full holdings last quarter. At the top of the heap, Stuart J. Zimmer’s Zimmer Partners dropped the biggest stake of all the hedgies watched by Insider Monkey, totaling an estimated $10.5 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund cut about $0.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 1 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Evoqua Water Technologies Corp. (NYSE:AQUA). We will take a look at Independent Bank Group Inc (NASDAQ:IBTX), Inter Parfums, Inc. (NASDAQ:IPAR), Banner Corporation (NASDAQ:BANR), and Pacira Pharmaceuticals Inc (NASDAQ:PCRX). This group of stocks’ market valuations resemble AQUA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IBTX | 11 | 119938 | 1 |
| IPAR | 13 | 64895 | 0 |
| BANR | 20 | 109128 | 5 |
| PCRX | 25 | 689388 | 4 |
| Average | 17.25 | 245837 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $246 million. That figure was $43 million in AQUA’s case. Pacira Pharmaceuticals Inc (NASDAQ:PCRX) is the most popular stock in this table. On the other hand Independent Bank Group Inc (NASDAQ:IBTX) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Evoqua Water Technologies Corp. (NYSE:AQUA) is even less popular than IBTX. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.