Here is What Hedge Funds Think About iRobot Corporation (IRBT)

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 a proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros 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.

iRobot Corporation (NASDAQ:IRBT) has experienced a decrease in enthusiasm from smart money lately. At the end of this article, we will also compare iRobot Corporation (NASDAQ:IRBT) to other stocks, including National HealthCare Corporation (NYSEMKT:NHC), Monotype Imaging Holdings Inc. (NASDAQ:TYPE), and Denbury Resources Inc. (NYSE:DNR) to get a better sense of its popularity.

If you’d ask most stock holders, hedge funds are perceived as unimportant, outdated investment vehicles of years past. While there are greater than an 8000 funds in operation at present, our experts hone in on the bigwigs of this group, about 700 funds. Most estimates calculate that this group of people commands the lion’s share of the smart money’s total asset base, and by monitoring their best investments, Insider Monkey has uncovered numerous investment strategies that have historically outrun the market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

With all of this in mind, let’s review the fresh action surrounding iRobot Corporation (NASDAQ:IRBT).

What does the smart money think about iRobot Corporation (NASDAQ:IRBT)?

At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 23% from the second quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund and institutional investor database, Willem Mesdag’s Red Mountain Capital has the biggest position in iRobot Corporation (NASDAQ:IRBT), worth close to $51.9 million, comprising 13.7% of its total 13F portfolio. On Red Mountain Capital’s heels is Royce & Associates, led by Chuck Royce, holding a $4.8 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish contain Matthew Hulsizer’s PEAK6 Capital Management, Ken Griffin’s Citadel Investment Group, and John Overdeck and David Siegel’s Two Sigma Advisors.

Since iRobot Corporation (NASDAQ:IRBT) has experienced falling interest from hedge fund managers, it’s easy to see that there were a few hedgies who sold off their positions entirely in the third quarter. It’s worth mentioning that D E Shaw sold off the biggest position of the 700 funds monitored by Insider Monkey, totaling an estimated $2.5 million in CALL options. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its CALL options, about $1.9 million worth of options. These moves are interesting, as aggregate hedge fund interest fell by 3 funds in the third quarter.

Let’s now review hedge fund activity in other stocks similar to iRobot Corporation (NASDAQ:IRBT). These stocks are National HealthCare Corporation (NYSEMKT:NHC), Monotype Imaging Holdings Inc. (NASDAQ:TYPE), Denbury Resources Inc. (NYSE:DNR), and Zafgen Inc (NASDAQ:ZFGN). All of these stocks’ market caps are closest to iRobot Corporation (NASDAQ:IRBT)’s market cap.

As you can see, these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $66 million. That figure was $68 million in iRobot Corporation (NASDAQ:IRBT)’s case. Denbury Resources Inc. (NYSE:DNR) is the most popular stock in this table. On the other hand, National HealthCare Corporation (NYSEMKT:NHC) is the least popular one with only 8 bullish hedge fund positions. iRobot Corporation (NASDAQ:IRBT) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard, Denbury Resources Inc. (NYSE:DNR) might be a better candidate to consider a long position.