At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Is Agilysys, Inc. (NASDAQ:AGYS) a bargain? The smart money is definitely selling. The number of bullish hedge fund positions retreated by 1 lately. AGYS was in 8 hedge funds’ portfolios at the end of September. There were 9 hedge funds in our database with AGYS holdings at the end of the previous 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 Ducommun Incorporated (NYSE:DCO), OvaScience Inc (NASDAQ:OVAS), and Bluerock Residential Growth REIT Inc (NYSEMKT:BRG) to gather more data points.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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How are hedge funds trading Agilysys, Inc. (NASDAQ:AGYS)?
At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, down by 11% from the second quarter of 2016. Below, you can check out the change in hedge fund sentiment towards AGYS over the last 5 quarters. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Michael Kaufman’s MAK Capital One has the most valuable position in Agilysys, Inc. (NASDAQ:AGYS), worth close to $78.5 million, corresponding to 50.2% of its total 13F portfolio. The second largest stake is held by Robert G. Moses of RGM Capital holding a $25.3 million position; 2.8% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism contain Jim Simons’ Renaissance Technologies, which is one of the largest hedge funds in the world, Jack Ripsteen’s Potrero Capital Research and Chuck Royce’s Royce & Associates. We should note that two of these hedge funds (RGM Capital and Potrero Capital Research) 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.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Discovery Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 700+ hedge funds tracked by Insider Monkey identified AGYS as a viable investment and initiated a position in the stock.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Agilysys, Inc. (NASDAQ:AGYS) but similarly valued. These stocks are Ducommun Incorporated (NYSE:DCO), OvaScience Inc (NASDAQ:OVAS), Bluerock Residential Growth REIT Inc (NYSEMKT:BRG), and Bassett Furniture Industries Inc. (NASDAQ:BSET). This group of stocks’ market caps are similar to AGYS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DCO | 8 | 21663 | -1 |
| OVAS | 13 | 48532 | 0 |
| BRG | 8 | 29099 | 0 |
| BSET | 10 | 52691 | 0 |
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $111 million in AGYS’s case. OvaScience Inc (NASDAQ:OVAS) is the most popular stock in this table. On the other hand Ducommun Incorporated (NYSE:DCO) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Agilysys, Inc. (NASDAQ:AGYS) is even less popular than DCO. 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
