Is AHCO Stock A Buy or Sell?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in AdaptHealth Corp. (NASDAQ:AHCO)? The smart money sentiment can provide an answer to this question.

Is AHCO stock a buy? AdaptHealth Corp. (NASDAQ:AHCO) shareholders have witnessed an increase in enthusiasm from smart money lately. AdaptHealth Corp. (NASDAQ:AHCO) was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 14. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 14 hedge funds in our database with AHCO positions at the end of the third quarter. Our calculations also showed that AHCO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

James E. Flynn of Deerfield Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s view the latest hedge fund action encompassing AdaptHealth Corp. (NASDAQ:AHCO).

Do Hedge Funds Think AHCO Is A Good Stock To Buy Now?

At the end of December, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 64% from one quarter earlier. On the other hand, there were a total of 10 hedge funds with a bullish position in AHCO a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Deerfield Management was the largest shareholder of AdaptHealth Corp. (NASDAQ:AHCO), with a stake worth $67.8 million reported as of the end of December. Trailing Deerfield Management was Polar Capital, which amassed a stake valued at $62.7 million. Driehaus Capital, Marshall Wace LLP, and Alyeska Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Kent Lake Capital allocated the biggest weight to AdaptHealth Corp. (NASDAQ:AHCO), around 7.11% of its 13F portfolio. Endurant Capital Management is also relatively very bullish on the stock, designating 2.04 percent of its 13F equity portfolio to AHCO.

Consequently, key money managers were breaking ground themselves. Kent Lake Capital, managed by Benjamin Natter, initiated the largest position in AdaptHealth Corp. (NASDAQ:AHCO). Kent Lake Capital had $15 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also initiated a $1.9 million position during the quarter. The following funds were also among the new AHCO investors: D. E. Shaw’s D E Shaw, Michael Gelband’s ExodusPoint Capital, and Jonathan Soros’s JS Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as AdaptHealth Corp. (NASDAQ:AHCO) but similarly valued. These stocks are Cushman & Wakefield plc (NYSE:CWK), Rocket Pharmaceuticals, Inc. (NASDAQ:RCKT), KB Home (NYSE:KBH), Canada Goose Holdings Inc. (NYSE:GOOS), Macquarie Infrastructure Corporation (NYSE:MIC), Copa Holdings, S.A. (NYSE:CPA), and Adient plc (NYSE:ADNT). This group of stocks’ market caps match AHCO’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.3 hedge funds with bullish positions and the average amount invested in these stocks was $450 million. That figure was $310 million in AHCO’s case. Adient plc (NYSE:ADNT) is the most popular stock in this table. On the other hand Cushman & Wakefield plc (NYSE:CWK) is the least popular one with only 15 bullish hedge fund positions. AdaptHealth Corp. (NASDAQ:AHCO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AHCO is 58.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and surpassed the market again by 0.9 percentage points. Unfortunately AHCO wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); AHCO investors were disappointed as the stock returned -24.9% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.