You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
Is Coupa Software Incorporated (NASDAQ:COUP) an exceptional investment today? The best stock pickers are getting more optimistic. The number of long hedge fund bets inched up by 5 in recent months. Overall hedge fund sentiment towards the stock currently sits at its all time. This is usually a bullish signal. We observed this in three other stocks: Adobe, Disney and Worldpay. Disney outperformed the market by 23 percentage points whereas Worldpay and Adobe beat it by 6 points.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s check out the new hedge fund action surrounding Coupa Software Incorporated (NASDAQ:COUP).
How have hedgies been trading Coupa Software Incorporated (NASDAQ:COUP)?
At the end of the first quarter, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards COUP over the last 15 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, Whale Rock Capital Management held the most valuable stake in Coupa Software Incorporated (NASDAQ:COUP), which was worth $285.9 million at the end of the first quarter. On the second spot was Sylebra Capital Management which amassed $281.8 million worth of shares. Moreover, Alkeon Capital Management, Duquesne Capital, and SoMa Equity Partners were also bullish on Coupa Software Incorporated (NASDAQ:COUP), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, key money managers were breaking ground themselves. Hitchwood Capital Management, managed by James Crichton, initiated the most valuable position in Coupa Software Incorporated (NASDAQ:COUP). Hitchwood Capital Management had $54.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $10.1 million position during the quarter. The following funds were also among the new COUP investors: Zach Schreiber’s Point State Capital, Brian Ashford-Russell and Tim Woolley’s Polar Capital, and Steve Cohen’s Point72 Asset Management.
Let’s also examine hedge fund activity in other stocks similar to Coupa Software Incorporated (NASDAQ:COUP). We will take a look at Pilgrim’s Pride Corporation (NASDAQ:PPC), First Solar, Inc. (NASDAQ:FSLR), Leggett & Platt, Inc. (NYSE:LEG), and Equitrans Midstream Corporation (NYSE:ETRN). All of these stocks’ market caps are closest to COUP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PPC | 14 | 140859 | -3 |
| FSLR | 23 | 358479 | 1 |
| LEG | 10 | 27949 | 1 |
| ETRN | 19 | 559560 | -9 |
| Average | 16.5 | 271712 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $272 million. That figure was $1385 million in COUP’s case. First Solar, Inc. (NASDAQ:FSLR) is the most popular stock in this table. On the other hand Leggett & Platt, Inc. (NYSE:LEG) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Coupa Software Incorporated (NASDAQ:COUP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on COUP as the stock returned 39.5% during the same period 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.
