Hedge Funds Are Selling Paycom Software Inc (PAYC)

Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Paycom Software Inc (NYSE:PAYC).

Is Paycom Software Inc (NYSE:PAYC) a good investment right now? Hedge funds are taking a bearish view. The number of bullish hedge fund positions that are disclosed in regulatory 13F filings fell by 1 in recent months. There were 18 hedge funds in our database with PAYC holdings at the end of the third 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 InterXion Holding NV (NYSE:INXN), Nu Skin Enterprises, Inc. (NYSE:NUS), and Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP) to gather more data points.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year, involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.

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Keeping this in mind, we’re going to go over the new action regarding Paycom Software Inc (NYSE:PAYC).

What does the smart money think about Paycom Software Inc (NYSE:PAYC)?

At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, down 5% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in PAYC at the beginning of this year. So, let’s see 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, Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors has the biggest position in Paycom Software Inc (NYSE:PAYC), worth close to $18.1 million, accounting for 3.2% of its total 13F portfolio. The second largest stake is held by Polar Capital, led by Brian Ashford-Russell and Tim Woolley, which oversees a $16.9 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish include Clint Carlson’s Carlson Capital, Greg Poole’s Echo Street Capital Management and Richard Driehaus’s Driehaus Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that got rid of their entire stakes in Paycom Software Inc (NYSE:PAYC) during the third quarter. Interestingly, John Croghan and Richard Fradin’s Rail-Splitter Capital Management unloaded biggest stake of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $9.2 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dumped about $3.9 million worth of shares.

Let’s now take a look at hedge fund activity in other stocks similar to Paycom Software Inc (NYSE:PAYC). We will take a look at InterXion Holding NV (NYSE:INXN), Nu Skin Enterprises, Inc. (NYSE:NUS), Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP), and WPX Energy Inc (NYSE:WPX). This group of stocks’ market values are closest to PAYC’s market value.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $541 million. That figure was $135 million in PAYC’s case. InterXion Holding NV (NYSE:INXN) is the most popular stock in this table. On the other hand Ryman Hospitality Properties, Inc. (REIT) (NYSE:RHP) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Paycom Software Inc (NYSE:PAYC) is even less popular than RHP. 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.