Is Axon Enterprise, Inc. (AXON) Going to Burn These Hedge Funds?

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 Axon Enterprise, Inc. (NASDAQ:AXON)? The smart money sentiment can provide an answer to this question.

Is Axon Enterprise, Inc. (NASDAQ:AXON) an exceptional stock to buy now? Money managers were taking a pessimistic view. The number of long hedge fund positions were trimmed by 7 lately. Axon Enterprise, Inc. (NASDAQ:AXON) was in 24 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 39. Our calculations also showed that AXON isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 31 hedge funds in our database with AXON holdings at the end of March.

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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Colin Moran of Abdiel Capital Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we’re going to analyze the new hedge fund action surrounding Axon Enterprise, Inc. (NASDAQ:AXON).

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

At Q2’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from the first quarter of 2020. By comparison, 39 hedge funds held shares or bullish call options in AXON a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Neal C. Bradsher’s Broadwood Capital has the most valuable position in Axon Enterprise, Inc. (NASDAQ:AXON), worth close to $134.4 million, comprising 6% of its total 13F portfolio. On Broadwood Capital’s heels is Abdiel Capital Advisors, managed by Colin Moran, which holds a $116.8 million position; 3.4% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism contain Noam Gottesman’s GLG Partners, Bryan Hinmon’s Motley Fool Asset Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Broadwood Capital allocated the biggest weight to Axon Enterprise, Inc. (NASDAQ:AXON), around 6.01% of its 13F portfolio. Motley Fool Asset Management is also relatively very bullish on the stock, dishing out 3.4 percent of its 13F equity portfolio to AXON.

Because Axon Enterprise, Inc. (NASDAQ:AXON) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of money managers that slashed their positions entirely heading into Q3. At the top of the heap, Renaissance Technologies sold off the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $25 million in stock. Michel Massoud’s fund, Melqart Asset Management, also sold off its stock, about $4.2 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 7 funds heading into Q3.

Let’s check out hedge fund activity in other stocks similar to Axon Enterprise, Inc. (NASDAQ:AXON). We will take a look at Sunrun Inc (NASDAQ:RUN), SentinelOne, Inc. (NYSE:S), Pegasystems Inc. (NASDAQ:PEGA), Cree, Inc. (NASDAQ:CREE), IPG Photonics Corporation (NASDAQ:IPGP), Essential Utilities Inc (NYSE:WTRG), and Pentair plc (NYSE:PNR). All of these stocks’ market caps resemble AXON’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1203 million. That figure was $514 million in AXON’s case. SentinelOne, Inc. (NYSE:S) is the most popular stock in this table. On the other hand Essential Utilities Inc (NYSE:WTRG) is the least popular one with only 13 bullish hedge fund positions. Axon Enterprise, Inc. (NASDAQ:AXON) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AXON is 26.6. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on AXON as the stock returned 3.3% since the end of the second quarter (through 10/22) and outperformed the market by an even larger margin.

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